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| Michael Bull |
ATLANTA, GA – When companies are looking for space, the
decision to lease or buy can be a tricky one. There are many factors —
including the expected growth of the company, location and the firm’s line of
business — that must be taken into consideration.
That was the consensus of a panel of experts on the most
recent episode of the “Commercial Real Estate Show” radio program, hosted by Michael
Bull of Bull Realty.
Bull and his guests discussed the pros and cons of leasing
and buying property, the proposed changes in the Financial Accounting Standards
Board’s (FASB) lease accounting requirements and the kinds of loans available
to purchase real estate.
 |
| Daniel Latshaw |
For many businesses looking for space, owning their own real
estate does offer certain perks. For one, there is no concern about escalating
rents.
According to the Urban Land Institute and Ernst & Young,
office rents are projected to increase four percent per year in 2014 and 2015,
said Daniel Latshaw, principal at Bull Realty. However, leasing offers
the flexibility to grow or shrink your space as needed, he noted.
Additionally, there are three tax incentives to purchasing
real estate — the transaction can be configured as a non-cash charge, there are
cash-out refinances that are non-taxable, and you have the option to do a 1031
exchange. However, owning real estate comes with considerable responsibilities,
including managing the property, Latshaw pointed out.
 |
| Eric Entringer |
For tenants who have already purchased real estate, a
sale-leaseback transaction might be a good way to go. “If you bought real
estate and your company is strong and stable, that’s the best time to look at a
sale-leaseback option,” said Eric Entringer, senior manager at Ernst
& Young.
In some cases in the current market, a tenant can purchase a
vacant building and lease the entire property to itself on a 10- to 15-year
lease term, and the building immediately becomes a “very sellable” asset, Bull
added.
Tenants should keep in mind the proposed change to FASB’s
lease accounting requirements. “FASB is proposing that real estate leasing
should be on company’s balance sheets, so if you are the lessee, you’ll be
bringing leases onto your balance sheet and recording right of use and
liability from a lease payment standpoint,” Entringer said.
For companies that are considering purchasing real estate,
lenders are very interested in owner-occupied financing at the moment since it
offers a lower risk than many other types of properties.
“We are seeing all
kinds of different banks lending for owner-occupied loans, and the competition
is steep, especially if the operating company that’s going to be in the
building is performing well,” said Deborah Possick Herron, CPA and
senior vice president of Georgia Small Business Capital.
The entire lease versus purchase episode is available for
download at www.CREshow.com. The next “Commercial
Real Estate Show” will be available on Aug. 22 and will feature an update on
the real estate syndication strategies.
For a complete copy of the company’s news release, please
contact:
Stephen Ursery
The Wilbert Group
404.405.2354
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