Envirobusiness, a nationwide environmental and engineering services firm, has purchased this 12,000-square-foot building at 4 A St. in Burlington for slightly under $1 million. Industry watchers say that an increasing number of small- to midsize-business owners are purchasing, rather than leasing, properties.
Small- to midsize-business owners are seizing the moment. Rather than resigning long-term leases, more and more owners are opting out of traditional leasing agreements and settling comfortably into property ownership.
For Alan Ouellet, vice president of Filter Sales & Service, buying – not renting – made perfect sense.
“Right now our annual carrying costs are half what it would cost to rent,” he said.
Charlestown-based Filter Sales & Service purchased 15 Adams St. in Burlington for $2.25 million. The 40,000-square-foot building was just what the company was looking for, in terms of both location and size. Had the company continued renting, Ouellet says it would have been forced beyond the Interstate 495 belt.
Ouellet isn’t alone. Several other business owners are buying space; in addition to the 15 Adams St. sale, Burlington-based Nordblom Co. has brokered the sale of 229 Andover St. in Wilmington for $1.75 million, 20-30 Island St. in Lawrence for $1.3 million and 4 A St. in Burlington for slightly under $1 million. Nordblom is also working with another small- to midsize-business owner on a transaction expected to close by mid-April.
“If you can own on a long-term basis it will be cheaper in the long run,” said David Gilkie, a vice president at Nordblom. “If you’re stable on your square-footage needs, it becomes the better option.”
Perfect Climate
Industry watchers say there’s a combination of forces at work – the historically low interest rates, for one, and underlying conditions that have the banks embracing the small to midsize occupier-owner. The climate is perfect, according to George J. Fantini Jr., chairman and principal of Boston-based Fantini & Gorga/ iCap Realty Advisors.
“There has never been, in my entire 40 years in banking, a better time for owner-occupiers to borrow money,” he said. Fantini, the founding president of the Real Estate Finance Association, has supervised the completion of more than 500 debt and equity property transactions.
Most banks across the country, including those in Massachusetts and throughout New England, now look favorably on business owners looking to buy properties in the $1 million to $10 million range. However, that wasn’t always the case. Conduit lenders, including companies such as Column Financial, which provide long-term, fixed-rate loans and allow the use of properties as collateral instead of personal guarantees, are taking over banks’ commercial lending market share. It’s a trend that has been building for the past 15 years, Fantini said: Conduit lenders seduce clients away from banks with better rates, terms and offers. The result? Thousands of bank loans are being paid off through conduit lenders, according to Fantini.
Bankers, who have watched their loan portfolios shrink as clients pay off debt through those alternative financial lenders, began to worry. “Then, all of a sudden, they’re beginning to embrace the small to midsize owner-occupied buyers because it’s hard for this group to get conduit loans,” Fantini said.
Conduit lenders, which don’t typically like single tenanted buildings, snub that portion of the market, creating an opening for the banks. A company looking to purchase a building for a corporate headquarters could receive five or six offers from bank lenders. Competition from conduit lenders has meant that more banks are willing to make the loan, and offer low interest rates and lower terms than the past. While many banks used to offer a three-year term, that could now be as much as seven years.
“Fantini & Gorga does a few of these but most owner-occupiers don’t need my services because they can walk in the door at any neighborhood bank and get a loan without the help of a professional because it’s so readily available,” Fantini said.
There was a time – during the real estate crash of the late 1980s to mid-1990s – when the same owner-occupier would have had a hard time securing a loan at all, but given the current climate, Fantini said that portion of the market is hearing nothing but good news.
“Will this change soon? No, banks will continue to lose loans to conduit lenders and will be more willing to embrace the owner-occupier going forward more than ever before,” he said. “If someone has the opportunity to buy a building they’re renting in, they would be well advised to purchase because the financial terms are so favorable.”
It’s no different than the wave of residential renters making the transition into homeownership, Fantini added.
