LOS ANGELES—Owner-user demand is picking up for small-to-mid sized office properties, according to Scott Romick, a principal and managing director at Lee & Associates LA North/Ventura office. Last year, owner-user sales were up 20% year-over-year, Romick himself has sold three owner-user office buildings in the 5,000 to 20,000 range over the past year. As the economy improves, it is likely that we will see more owner-users looking to buy rather than rent, but when should owners make the move from renter to owner? We sat down with Romick for an exclusive interview to find out how he is advising his clients, when buying is a good option and the downsides of owning.

GlobeSt.com: What's Behind the Rise in Owner-User Office Demand?

Scott Romick: As the economy improves, small- and mid-sized business owners turn their attention from 'hanging in' to positioning for growth and maximizing profits. In locales that are dominated by these types of businesses such as the Los Angeles North region, a favored strategy has been and continues to be purchasing rather than leasing a building. Ninety office sale transactions took place in the Los Angeles North region in 2015, a 20% increase over 2014; and the median price of office buildings sold rose 14% to $212 per square foot for the same period, according to real estate tracking company CoStar. Admittedly, a number of those sales were investment purchases, but many were owner-user transactions.

GlobeSt.com: What makes purchasing a building attractive to business owners?

Romick: It makes sense. It's a better investment than paying rent into perpetuity, and you have more control over your overhead expenses. If you are a tenant in a large multi-tenant office building, you are subject to variances in many operating costs during the course of your lease, and you don't know what your rent will be at the end of your lease. Smaller buildings are subject to fewer variances in operating costs, so owners can budget expenses for the long term. Additionally, building ownership offers tax advantages and the benefit of potential appreciation of your asset.

GlobeSt.com: Are there any downsides?

Romick: In today's market, purchase prices are high, and real estate is cyclical. Purchasing at the top of the market carries more risk, but it is a risk that can be mitigated by careful planning. With a five to seven year hold, owners can pay down the principal, build equity and position themselves to ride out down-cycles.

GlobeSt.com: Does it make sense for all business owners, or are there situations when purchasing your business facility is not a good idea?

Romick: Buying your business office can be very advantageous for a strong, stable company. Business owners need to evaluate their finances and their growth plans. If the business is at a stage that requires significant CapX spending to grow, a real estate down payment may be better utilized for working capital. It's also important to take the stability of the business into account. If growth and the size of the business are fluctuating, it's not advantageous to be locked into a space that you own, so you need to look at your five-year growth plan and determine how stable your space needs will be.

GlobeSt.com: Should business owners be focused on the real estate as an investment or as a business tool?

Romick: A business owner should look at buying real estate as a business tool, but the investment is a bonus. In 2011 the median price of buildings sold in Los Angeles North was $150 per square foot. By the end of 2015 it was $212 per square foot. That's the bonus.

GlobeSt.com: Are there things a business owner should consider and plan for before embarking on a search to buy a property?

Romick: Planning ahead is always a good idea. Consider things like structuring a lease with the flexibility to get out of it and getting your financials in order. Do the research to determine what type of financing will best suit your needs. Some types of SBA financing allow you to buy a building twice as large as your business needs so long as you occupy 51 percent of the building. Investigate getting pre-approved for the type of loan you need. Understand the leasing market in the area where you would like to purchase so that you know the rate at which you will be able to lease up the remaining space if you opt for a larger building, and determine if that makes sense for you. Have a five-year plan so you have some assurance that you won't grow out of the space or, conversely, need to reduce your office space, and manage your expectations. In today's market, there is very little inventory to choose from.

GlobeSt.com: Have you seen an increase in demand from business owners to buy their real estate?

Romick: We are seeing an increase in interest commensurate with the improvement in the business climate. Businesses are more inclined to use their excess cash flow for this type of investment, and interest rates are still at historic lows making purchasing more affordable. Transaction volume is up considerably in this market, but I'm fairly certain it would be higher still if we didn't have the inventory constraints that exist.

LOS ANGELES—Owner-user demand is picking up for small-to-mid sized office properties, according to Scott Romick, a principal and managing director at Lee & Associates LA North/Ventura office. Last year, owner-user sales were up 20% year-over-year, Romick himself has sold three owner-user office buildings in the 5,000 to 20,000 range over the past year. As the economy improves, it is likely that we will see more owner-users looking to buy rather than rent, but when should owners make the move from renter to owner? We sat down with Romick for an exclusive interview to find out how he is advising his clients, when buying is a good option and the downsides of owning.

GlobeSt.com: What's Behind the Rise in Owner-User Office Demand?

Scott Romick: As the economy improves, small- and mid-sized business owners turn their attention from 'hanging in' to positioning for growth and maximizing profits. In locales that are dominated by these types of businesses such as the Los Angeles North region, a favored strategy has been and continues to be purchasing rather than leasing a building. Ninety office sale transactions took place in the Los Angeles North region in 2015, a 20% increase over 2014; and the median price of office buildings sold rose 14% to $212 per square foot for the same period, according to real estate tracking company CoStar. Admittedly, a number of those sales were investment purchases, but many were owner-user transactions.

GlobeSt.com: What makes purchasing a building attractive to business owners?

Romick: It makes sense. It's a better investment than paying rent into perpetuity, and you have more control over your overhead expenses. If you are a tenant in a large multi-tenant office building, you are subject to variances in many operating costs during the course of your lease, and you don't know what your rent will be at the end of your lease. Smaller buildings are subject to fewer variances in operating costs, so owners can budget expenses for the long term. Additionally, building ownership offers tax advantages and the benefit of potential appreciation of your asset.

GlobeSt.com: Are there any downsides?

Romick: In today's market, purchase prices are high, and real estate is cyclical. Purchasing at the top of the market carries more risk, but it is a risk that can be mitigated by careful planning. With a five to seven year hold, owners can pay down the principal, build equity and position themselves to ride out down-cycles.

GlobeSt.com: Does it make sense for all business owners, or are there situations when purchasing your business facility is not a good idea?

Romick: Buying your business office can be very advantageous for a strong, stable company. Business owners need to evaluate their finances and their growth plans. If the business is at a stage that requires significant CapX spending to grow, a real estate down payment may be better utilized for working capital. It's also important to take the stability of the business into account. If growth and the size of the business are fluctuating, it's not advantageous to be locked into a space that you own, so you need to look at your five-year growth plan and determine how stable your space needs will be.

GlobeSt.com: Should business owners be focused on the real estate as an investment or as a business tool?

Romick: A business owner should look at buying real estate as a business tool, but the investment is a bonus. In 2011 the median price of buildings sold in Los Angeles North was $150 per square foot. By the end of 2015 it was $212 per square foot. That's the bonus.

GlobeSt.com: Are there things a business owner should consider and plan for before embarking on a search to buy a property?

Romick: Planning ahead is always a good idea. Consider things like structuring a lease with the flexibility to get out of it and getting your financials in order. Do the research to determine what type of financing will best suit your needs. Some types of SBA financing allow you to buy a building twice as large as your business needs so long as you occupy 51 percent of the building. Investigate getting pre-approved for the type of loan you need. Understand the leasing market in the area where you would like to purchase so that you know the rate at which you will be able to lease up the remaining space if you opt for a larger building, and determine if that makes sense for you. Have a five-year plan so you have some assurance that you won't grow out of the space or, conversely, need to reduce your office space, and manage your expectations. In today's market, there is very little inventory to choose from.

GlobeSt.com: Have you seen an increase in demand from business owners to buy their real estate?

Romick: We are seeing an increase in interest commensurate with the improvement in the business climate. Businesses are more inclined to use their excess cash flow for this type of investment, and interest rates are still at historic lows making purchasing more affordable. Transaction volume is up considerably in this market, but I'm fairly certain it would be higher still if we didn't have the inventory constraints that exist.