June 29, 2006
Will small businesses buy into condo offices?
By TERRY STEPHENS
Special to the Journal
Developers are beginning to test the Puget Sound market for office condos, which offer ownership advantages that are drawing the attention of physicians, attorneys and other professionals.
The office condo option has found wide appeal elsewhere in the country, according to local real estate agents, but there has been only a trace of interest in the Northwest -- until recently. Scarce land, rising prices and climbing construction costs are putting ownership beyond the reach of many businesses, so they are looking at office condos.
What appears to be Puget Sound’s largest venture in this new sector is a proposed 40,100-square-foot, two-story, Class A office building being marketed in the 92-acre Opus Northpointe business park, on the north edge of Lynnwood.
Priced at $250 per square foot, office sizes start at 4,400 square feet, with finished premises, HVAC and a coffee bar. Ownership includes use of all common areas and four covered parking stalls per office.
The Northpointe park already has major tenants, including Cypress Semiconductor and the new Berlex biopharmaceutical plant. The office condo building will be joined later by several other office structures at the business complex. Mark Rowe, senior real estate manager for Opus Northwest in Bellevue, said he expects to announce in early July a major new tenant.
“A lot of the businesses we’re hearing from are looking for smaller spaces and they prefer to own their property rather than leasing. So we thought we could kick off this building (concept) to help them and us,” said Rowe.
On the market for three months, the office condo building has found particular interest from professional service businesses, including attorneys, physicians and dentists, said Cushman & Wakefield’s Tom Bohman, the leasing agent for Opus Northpointe.
“The concept of office condos is already popular in California, Arizona and other markets but relatively new in the Northwest,” Bohman said. “They’re not for everybody but they work for some businesses as the market shifts. Mortgages and payments are fixed, compared to fluctuating leasing rates that continue to escalate, so you can control your costs better.”
Bohman said tax advantages can be helpful for businesses that own their office space, including mortgage interest and depreciation, but in the marketplace the offices are likely to increase in value, too, providing future sale opportunities.
“For professionals who typically have stable business operations and fixed space needs, office condos can be a real winner for them,” Bohman said.
On the Opus Northpointe Web site, Josh Berde of GE Commercial Finance in Bellevue has laid out some of their potential financial advantages. He notes that a $1.5 million purchase of a 6,000-square-foot unit in the new building, with a down payment of $150,000 at 6.93 percent interest for 20 to 25 years, would mean an estimated monthly payment of $9,954.
Although the same space could be leased for only $8,250 a month with a security deposit of $8,350, when ownership benefits are considered, the total monthly cost would be only $4,887, compared to leasing. Also, he notes, the condo owner has the option of selling the property -- or selling his business and leasing the office space to a buyer -- whereas a leasing tenant only gathers rent receipts.
In Silverdale, Rich Rucker of The Rucker Group is overseeing development of the Highland Business Park, including Cavalon Place, a 36,000-square-foot office-condo building due to be finished by fall.
“In our markets in Kitsap County, we’re finding a lot of small businesses -- like attorneys, insurance companies, chiropractors and physicians --who want to own their own property but there isn’t a whole lot of land available with the proper zoning,” Rucker said. “They’re really frustrated about trying to find space they can own. This Class A office building is a nice alternative. It’s centrally located, with covered parking on the first level and three floors of offices above.”
Cavalon Place is expected to fill the need for 1,000-to-5,000-square-foot offices that Rucker said are hard to find in Kitsap County. One firm, Pacific Northwest Mortgage, is involved in the project and also will be moving its offices there.
“We’ve had a lot of inquiries since we put up the sign and people are telling us they want to buy in but we haven’t started taking deposits yet, so we don’t know yet if this venture is a home run or just a double or triple,” Rucker said.
Office condos never had much appeal before this year, he said, because “it was easy to find land and build and there were plenty of buildings to lease … now with growth management plans and more restrictive zoning, there hasn’t been as much building and leasing rates on existing properties are going up.”
Rucker said the Cavalon Place development also has views of the water and the Olympics, “a state-of-the-art office building that’s unlike anything else in the area, right in the heart of Silverdale with easy freeway access … if anything will appreciate this will.”
Terry Stephens is a freelance writer based in Arlington. He can be reached by e-mail at firstname.lastname@example.org.
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