Brentwood Bank client David C. Stoehr
is a perfect example of how proper
planning and market intelligence can pave the way for a successful commercial
real estate venture. Stoehr is founder and
president of Chem-Trade International,
which designs and builds pollution control
equipment. Like most entrepreneurs who
built their businesses from the ground up,
Stoehr eventually expanded to the point
that he needed more square footage.
The problem? He couldn’t find what he
wanted, so he decided to construct a new
warehouse/office building — one larger
than just his business would fill. “His conversations with other local business owners indicated that there was a need in his
area for this type of flex-space facility.
Additionally, the construction of a larger
facility would present an investment
opportunity in which he could supplement
cash flow and build wealth through equity
over time,” says Jeff Skocik, vice president
and manager of commercial lending at
Brentwood Bank.
Skocik sees more and more business
owners/principals contemplating similar
commercial investment opportunities —
both out of short-term necessity and for
their long-term equity and revenue potential. Before taking a leap into the commercial real estate market, he advises business
owners/principals to consider three things:
- your current and future needs versus
corresponding market opportunities - ultimate project objectives versus your
return-on-investment strategy - your
financing options relative to the requirements of the specific project type you want
to undertake (since those requirements
will vary depending on the scope and scale
of each project).
Smart Business asked Skocik to address
the commercial real estate investment and
financing process, in the first of a series.
Why might a business owner decide to invest
in real estate?
For many of the same reasons you might
decide to buy a home rather than continuing pay rent. Generally, we find that business owners simply realize they are at ‘that
point.’
‘That point’ may be when you finally get comfortable with the idea of making a real
estate investment and feel it’s time to take
it on. Maybe it’s when you realize that you
cannot grow unless you acquire additional
space. It could be when you need to meet
special needs or operating requirements —
for example, adding loading docks, refrigeration equipment, the capacity to handle
large cranes, etc. Or maybe it’s strictly a
personal or business investment decision.
What financing options are available for
business owners and individuals who decide
to invest in real estate?
The key thing to understand about any
such investment is that different banks and
financing entities will have different levels
of expertise with these kinds of transactions. In order to expedite matters and minimize headaches, it is critical for the business owner/principal to seek out core competencies in areas such as real estate-based
lending, construction financing and large-scale project development, if any of these
are your intentions.
By ‘intentions,’ do you mean the same thing
as your ‘ultimate project objectives’?
Yes, exactly. Your project objectives ultimately follow from the way you decide to approach both your needs and the corresponding market opportunities: you might-pursue and purchase an existing facility or
renovate or expand to satisfy additional
requirements. Or, if a facility is not available from the commercial stock in the
area, you may decide to purchase land on
which to design and construct a new facility.
David Stoehr went one step beyond his
own needs and decided to also fill a need
he found others shared in the marketplace.
In doing so, his objective, ultimately, could
have involved anything from making a simple real estate investment to undertaking a
full-blown development project. It’s important to understand that all of these scenarios involve and require different things,
from a financing perspective.
What lessons can we all take from Stoehr’s
experience?
Doing your homework is critical. In
Stoehr’s case, he did his due diligence on
the investment before jumping in. He built
a strong case. For instance, he knew that
he wanted to lease a portion of the building
to tenants. So to gauge interest in his construction project, he pre-leased the property, advertising the building so he could
weigh the support of the business community. Also, he researched how many other
types of buildings were exactly like the one
he wanted to build. He found out there was
none, which further justified his desire to
invest in a ground-up project.
The question, ‘Should I lease or buy property?’ is difficult for many business owners/principals. By researching the market,
predicting income on his investment and
estimating long-term returns, Stoehr realized that he had an opportunity to both
build-to-suit and benefit financially over
time. When that’s the case, the opportunity
you have to invest in real estate may simply
present too many up-sides to ignore.
Look for more on “Building Value” in
future editions of the magazine.
JEFF SKOCIK is vice president and manager of commercial lending for Brentwood Bank in the South Hills. Reach him at (412) 409-9000 or [email protected].