With interest rates at historic lows, governments offering more subsidies for community reinvestment and a good amount of vacant commercial real estate, business owners are moving away from leasing and making the move to buy.
ShoreBank COO Stephanie McHenry says now is the right time to buy, in part because owning a building can strengthen your overall asset balance.
“One clear advantage for a business to look at a purchase is that you have a ready-made asset on your balance sheet,” she says. “You can borrow against it if you build up equity, especially if you’re in a service business where you don’t have a lot of other fixed assets.”
McHenry says it’s a good idea for a business to buy as long as it takes into account future plans. One mistake some buyers make is being too conservative about how much space they may need in the future.
“Owners should keep in mind there could be expansion of their business,” she says. “They shouldn’t go into a facility that’s exactly the right size but (one that’s) a little bit bigger.”
Manufacturers especially should be aware that space needs aren’t always predictable.
“You might get a big customer that requires you to add a couple assembly lines, and when you own your property, it’s easier to make those kind of adjustments than it is if you’re leasing space,” McHenry says.
Another advantage to buying is that you can apply for local and state tax incentives, especially in areas designated enterprise zones.
“With the Ohio enterprise zones, you can work with the state to get up to 75 percent exemption, and that’s based on your being willing to locate usually in areas that have lower income. You’re creating jobs in those areas,” she says.
Prime neighborhoods for commercial relocation are the Glenville, South Collinwood, Midtown, University Circle and Hough areas, she says.
Buyers should also investigate the benefits of Ohio’s Community Reinvestment Area (CRA) Program, a direct incentive tax exemption program benefiting property owners who renovate existing buildings or build new ones. And the Cleveland Economic Development Department offers a Neighborhood Development Investment Fund Loan, which provides gap financing for large-scale economic development and housing ventures. Eligible projects must preserve or create at least 100 jobs and be located in a Cleveland neighborhood. Loan amounts range from $500,000 to $2 million.
Once you’ve decided to take the plunge into ownership, it’s important to apply the same due diligence as you would when buying a home.
“It’s not just the normal kicking the tires, as you might imagine,” McHenry says. “It’s digging deep into environmental issues that might be in the neighborhood because those could have an impact on your ability to get financing. You should also be aware of any potential liabilities for you as the building owner.”
Looking at the location from your employees’ perspective is another important consideration.
“If your employees perceive the location of your shop is in an area that’s dangerous or too isolated, that could have an impact on who’s willing to work for you,” McHenry says. “That doesn’t mean you should avoid areas altogether, but you should think about how to enhance that security and the perception for your employees.”
McHenry has seen leaders move their companies outside the city limits, then realize they’ve lost their employment base, which often lives closer to more urban areas for transportation and child care reasons.
“Be honest about where your employees will come from and how easy it is for them to access your facility.” How to Reach: ShoreBank, (216) 268-6100, www.shorebankcleveland.com; Ohio Department of Development, (800) 848-1300, www.odod.state.oh.us; Cleveland Economic Development Department, (216) 664-2406, www.city.cleveland.oh.us/government/departments/econdev/edind.html
Enterprise zones
The Ohio Department of Development reports that, as of January 2003, these cities, villages or townships have enterprise zone status.
* Cuyahoga County: Bedford, Bedford Heights, Berea, Brook Park, Cleveland, East Cleveland, Cuyahoga Heights, Euclid, Garfield Heights, Glenwillow, Highland Heights, Maple Heights, Mayfield Heights, Newburgh Heights, North Olmsted, North Royalton, Oakwood, Olmsted Falls, Parma, Richmond Heights, Shaker Heights, Solon, South Euclid, Strongsville, Valley View and Westlake
* Lake County: Concord Township, Eastlake, Fairport, Grand River, Kirtland, Madison, Madison Township, Mentor, Mentor-On-The-Lake, North Perry, Painesville, Perry, Perry Township, Wickliffe, Willoughby and Willowick
* Lorain County: Amherst Township, Avon, Avon Lake, Elyria, Grafton, Lagrange, Lorain, New Russia Township, North Ridgeville, Oberlin, Sheffield, Sheffield Lake, Sheffield Township, Vermillion and Wellington
Community reinvestment
The Ohio Department of Development reports, as of July 30, 2003, that these communities are post-1994 community reinvestment areas.
* Cuyahoga County: Bedford, Bedford Heights, Broadview Heights, Cleveland, Cleveland Heights, Cuyahoga Neighborhood, East Cleveland, Garfield Mall, Glenwillow, Highland Heights, Highland Hills, Maple Heights, North Randall, Parma, Warrensville Heights East, Warrensville Heights West and Westlake
* Geauga County: Troy Township
* Lake County: North Perry Village, Painesville, Perry Township, Wickliffe and Willowick
* Lorain County: Avon Lake, Elyria, Grafton, Lagrange, Wellington, Vermilion/East Liberty and Vermilion/Harbour Point
