What are Office Condominiums? Overview & 10 Facts

Office condominiums are a new type of property that has recently entered the market. These are unique buildings that combine office space with residential units, or apartments. These structures may be built on traditional real estate land, or in highly commercial districts.

What are Office Condominiums?

Office condominiums function similarly to their private housing equivalents. Instead of renting an office suite, some businesses acquire a single unit in a complex.

 

What are Office Condominiums?

All tenants share ownership of the common areas, and a board often manages landscaping and other maintenance issues. In downtown regions of medium to smaller cities, office condos are frequently developed as part of a mixed-use makeover.

Advantages and Disadvantages to Office Condominiums

There are benefits and drawbacks associated with office condominiums. The enhanced ownership rights compared to renting or leasing comparable premises is a benefit. Since rental properties are constantly under the control of a landlord, the monthly rent could be increased or the tenant’s lease could be cancelled with short notice.

Condominium-dwelling businesses might prevent unpleasant shocks by owning the space. The mortgage payment should stay reasonably steady during the duration of the loan.

Office condominiums are great for businesses and professionals who can accurately anticipate their permanent space requirements. In such an environment, an architecture business or a small advertising agency would perform well, but a budding manufacturing company would find it practically impossible to expand in the future.

Additionally, there may be restrictions on the type of company that can be undertaken in units. For example, the facilities may not be able to support an excessive number of client parking spaces.

Mixed-use buildings provide a benefit for people leasing office condominiums. It is not uncommon for condominiums to combine space with restaurants, specialty shops, and other consumer outlets.

This implies that the employees of these offices do not have to drive far for food and amusement. Mixed-use structures are typically placed in urban cores or other densely populated economic districts.

Larger corporations may invest in office condominiums during economic downturns in order to combine departments. If their current rental or leasing arrangements are advantageous, smaller enterprises may not recognize the benefits of condo ownership. Frequently, units are developed under the “If we build it, they will come” paradigm.

What does an office condo look like?

Office condos, a developing trend in commercial real estate, are often part of mixed-use buildings that house small retail, restaurants or cafes, and offices.

With this type of building, businesses can purchase as many or as few units as they need and personalize them to meet their specific demands, all while having access to retailers and hotel rooms for the utmost in business convenience.

How does it work?

Office condo tenants share the building’s amenities in the same way that residential condo owners do. Common areas are co-owned by all office condo owners, landscaping and upkeep are handled by a condo board and their property manager, and all office condo owners share in the benefits of these features.

What are Office Condominiums?

Who does an office condo work for?

Not every company is suitable for condo space. Owning office space is too permanent an investment for a fast expanding organization, which cannot estimate the amount of space it will require in the future.

However, office condos are ideal for organizations that know the approximate size of their future needs. There is minimal chance that a business like an architecture company or a doctor’s or dentist’s office will outgrow its office condo over a number of years.

If your business wants flexibility and a steady amount of space, as well as the possibility to adapt your office space as necessary, a commercial condo is the ideal solution.

Why should a business owner invest in a condo space?

The autonomy and fiscal responsibility that come with condo ownership extend to commercial units.

Ali Akman, president of SAMM Holdings, opines, “The equity gained from owning your own office space is vital to the future of your organization. It significantly increases the worth of your company without requiring you to make a large investment in an office facility.”

Buying an office condo is the same type of investment as buying a residential condo; it is a secure source of equity that is not subject to the risk of rent hikes by landlords. Business owners place a high value on a commercial condo because of the stability it offers.

Things to Consider About Office Condos

Finding suitable office space as the owner of a small business can be a difficult task. There are other variables to consider, such as size, location, and cost. Office condos are a relatively novel concept that is gaining traction.

In the same way that a residential condo is a building with individual units that can be purchased as living space, an office condo is a structure with separate units that can be purchased as office space.

These structures are becoming more prevalent, particularly in densely populated urban areas. The market for office condos is young but expanding rapidly, as these lower-priced rooms meet the needs of a large number of people.

How to know if an office condo is right for you

Depending on the type of business you run, an office condo could be the ideal location for your operations. In our quickly digital age, businesses with a larger online presence profit immensely from office condos because they need less room to conduct business.

As the more affordable alternative for office space, they are ideal for startups that may utilize the additional savings. They are even attractive to foreign enterprises seeking international expansion.

What are Office Condominiums?

Although office condos are gaining in popularity, businesses interested in owning one should consider their expansion plans, as they are not appropriate for space-intensive enterprises.

Some sponsors impose restrictions on the kind of businesses that can purchase space in their building, and typically, manufacturing enterprises cannot purchase office condos.

Buying vs leasing an office condo

After determining that an office condo matches your company’s needs, you must determine whether to purchase or lease the space. Each alternative has advantages and downsides that must be considered.

The benefits of purchasing an office condo include a fixed mortgage, tax deductions for non-profit owners, the ability to create additional income by renting out any surplus space, and appreciation that can contribute to your retirement fund. On the negative, they need a larger initial investment and make expansion more difficult for rapidly expanding enterprises.

Foreign corporations typically choose to buy because they view it as the more cost-effective long-term choice. If you decide to lease, it will be easier to obtain a desirable site for your business and you will save more money up front. However, you are subject to a landlord’s decisions and you forfeit business-enhancing equity.

The majority of new business owners lease their commercial property until they are able to purchase it. When deciding whether to buy or lease your office condo, it is crucial to consider your company’s future goals and which option best serves the company’s best interests.

Final Steps

After deciding whether to buy or lease an office condo, assemble a team of accountants, attorneys, real estate agents, and mortgage brokers to assist you in finding the ideal place, negotiating a contract, and handling the financial intricacies. After completing all of these steps, you can finally take the plunge and conduct business in your new office apartment.

Aurum & Sharpe is a New York City-based, full-service commercial mortgage agency. We can assist you in acquiring and financing a commercial office condominium.

The tax advantages, cost savings, and predictability of spending make purchasing a commercial condominium a wise decision for many businesses. Here are seven hazards to avoid when purchasing a condominium office space.

1. Not Understanding That 1 Square Foot Does NOT Always Equal 1 Square Foot

There are numerous radically different square foot measurement techniques, with rentable square feet, useable square feet, and gross square feet being the most popular.

A corporation may be leasing 1,500 square feet in an office building, sign a contract to purchase a 2,000-square-foot condominium unit, and wind up with fewer usable square feet than when it was leasing 1,500 square feet alone.

Core component is the proportionate amount of the main lobby, elevator shafts, janitor’s closet, and other similar spaces included in the square footage of many office condominiums. Some condominium buildings have a core factor of more than 20%, thus a 2,000-square-foot office condominium unit may only have 1,600 square feet of usable space.

What are Office Condominiums?

2. Not Designing the New Space Prior to Purchase

Similar to not knowing the numerous measurement techniques utilized, many purchasers neglect to have a space planner map design or test-fit their office.

In a buyer’s market, many sellers will allow a buyer to have the seller’s space planner design space for the buyer at the seller’s cost and expense, or may grant a $1,000 or $1,500 allowance for guaranteeing that the space will meet the buyer’s requirements.

Inadequate space planning may result in a condominium unit that does not suit the buyer’s company’s commercial requirements.

3. Not Anticipating Future Growth

When a business leases premises, it is significantly simpler to expand. In a large office building, the landlord has the ability to relocate tenants to alternative space, such as various floors. If a person owned a house and wanted extra space for his or her family, expansions may be constructed to the main structure; this is rarely conceivable in an office condominium situation.

Consider purchasing a smaller condo unit adjacent to the one being acquired, or ask the developer for the right of first refusal to purchase the adjacent unit at a later date. If a corporation is interested in purchasing a 4,000-square-foot condominium apartment, there may be an additional 1,000 square feet adjacent to the unit.

The 1,000-square-foot facility might be leased until the need for further space arises. Plans for future expansion should be incorporated in the design of the 4,000-square-foot apartment, as well as a strategy for incorporating the 1,000-square-foot unit into the 4,000-square-foot unit to make it all work.

4. Not Understanding the Expenses

When leasing office space, there is often a base or minimum rent based on a price per square foot, in addition to the obligation to pay a percentage of the building’s operational expenses, which frequently include insurance, taxes, power, and maintenance charges.

However, when leasing office space, the office lease may exclude certain items from operational expenses, such as capital expenses like roof replacement, HVAC system replacement, and building-related structural maintenance.

The budget for office condominiums covers all of these elements, both for repair and maintenance and for construction expenses. In addition, sufficient monies should be set aside on a monthly basis to ensure that major repairs, maintenance, and replacements, such as repaving and restriping the parking lot and replacing the parking lot’s light poles, can be completed in ten years.

Furthermore, the first budget prepared by the developer is merely an estimate. A prospective buyer should have a qualified third party review this budget carefully to determine whether or not it includes all applicable categories, such as pest control, maintenance of interior HVAC units that serve the common space, electricity costs for common areas of the building, maintenance of exterior stairs and railings, repair and maintenance of exterior storm water management systems, etc.

In addition, a prospective purchaser should want to examine the capital repair and replacement schedule and estimate, which would provide information on how long until the roof needs to be replaced and the associated cost.

A prospective purchaser should then examine the budget to establish whether adequate funds have been or are being set aside to pay for the replacement of the capital item in question. Some office condominium regimes fail to reserve adequate cash for capital items, which may necessitate a one-time special tax to pay for the $150,000 roof replacement.

5. Not Understanding Restrictions or Not Anticipating the Lack Thereof

A declaration and governing documents control the condominium regime. In addition, there are frequently additional restrictions in the deed of grant or other title papers, such as a master statement. Insofar as the condominium building is situated within an office park, the master declaration may place additional limits on the owners and their future use.

What are Office Condominiums?

During the period of due diligence, the title company should submit a title commitment that includes a list of all papers to which the condominium unit will be subject, as well as a copy of each document. After acquiring a comprehensive grasp of the nature of the company’s business, a prospective purchaser should have a qualified specialist analyze these documents.

Frequently, these agreements may contain usage limits that contradict with an organization’s operations. In an office condominium, for instance, these contracts may limit the selling of specific things, which could impair an optometrist’s ability to sell spectacles to patients.

In addition, a prospective purchaser should carefully examine the limits in light of the fact that neighbors may negatively affect business operations.

While the primary aim of the condominium regime may be office usage, it is feasible for a restaurant or bar to open in the building, as well as an abortion clinic, veterinary clinic, or methadone treatment clinic, unless expressly prohibited by the underlying contracts.

If a prospective buyer intends to operate a sleep clinic in the building, it may not want a restaurant or bar on the premises.

6. Not Understanding the Finish Condition

Regarding existing condominium units that are being purchased from an existing user, the finish condition is straightforward as it is the existing condition of the space, unless the contract of sale specifies otherwise.

However, condominium units are frequently purchased from the building’s developer in an unfinished state or placed under contract prior to the building’s completion. Regarding the acquisition of a condominium unit in a raw state or prior to the completion of the building, it is vital to comprehend the following:

When a buyer purchases a condominium unit directly from the developer, the developer often pays a tenant improvement allowance to cover the cost of the build-out.

7. Not Reviewing any Restrictions or Limitations with regard to the Parking

Not only is it vital to examine the existing parking ratio for the building, but also to determine whether there will be enough parking in five years and what types of parking space users may be in the structure.

The current parking ratio is calculated by dividing the total number of parking spaces, excluding handicapped spots, by the building’s gross square footage.

While marketing or sale brochures for the building would normally specify the parking ratio as X spots per thousand square feet, it is essential to examine the underlying documentation to ensure that the parking ratio is accurate.

It is also essential to determine whether the developer will reserve parking spaces or whether the condominium association has the right to do so in the future.

If there are no restrictions on uses in the building, then it is feasible that some heavy parking users (e.g., a telephone calling center, a large medical office, or a sit-down restaurant) may purchase space there, and there may not be enough parking spaces for all building owners.

What are Office Condominiums?

8. Not Asking Questions about Signage

Be sure to ask questions and understand which kind of signs will be permitted and which will be forbidden. Frequently, the size and style of permitted signage is restricted by the condominium’s governing documents. Will signage on the exterior of the building be permitted?

Will the developer provide a marquee sign outside the building that lists each tenant? Or, will the developer provide building internal signage via a central directory or an electronic building display? Also, ascertain if there are any limits on the ability of a realtor to display for-sale signs on the property at the time of resale.

9. Not Reviewing the Zoning, Site Plan & Condo Plat

It is crucial to review the property’s permitted uses in accordance with the applicable zoning restrictions. If the buyer intends to fabricate and manufacture computer cables at the condominium, does the condominium’s underlying zoning permit this?

Also essential is an examination of the site plan and condominium plat. The site plan may contain additional constraints or restrictions about the quantity of retail use or the number of parking spaces that may be utilized by a single condominium unit.

In addition, the condominium plat may specify designated parking spaces and will often designate the unit’s perimeter. It is crucial to determine if the vertical boundaries of a condominium unit are the internal face of the demising walls, the midpoint of the demising walls, the outer face of the exterior walls, or some other boundary.

Understanding where the bottom of the condo unit begins and where the top of the condo unit ends is of equal importance. These perimetrical borders affect not just how utilities are administered, but also the condominium’s budget and what must be insured under its master insurance policy.

10. Failing to Hire the Right Professionals

All of these errors can be avoided by consulting with a lawyer who has a thorough understanding of the legal concerns that small businesses confront when owning an office condominium.

Although some business owners believe they do not need a real estate attorney because they are already working with a commercial real estate broker, this approach can often end up costing the business owner more because most real estate brokers are not trained as attorneys to identify issues and problems.

Taking the effort to locate a lawyer that fulfills your needs is one of the best investments you can make for the growth of your business.

At the Law Offices of Kirk Halpin & Associates, P.A., our seasoned attorneys are committed to providing each client with the individualized attention and advice required to assist a company owner in purchasing a condominium unit.

Moreover, our professional attorneys are leaders in the Maryland legal field, and they stand ready to assist you with your real estate, construction, zoning, and a variety of other legal issues.

Why Buy?

Advantages of Ownership

Tenants who own office condominiums in Manhattan are able to lock in their occupancy costs and shelter themselves from the escalating cost of office leasing. Controlling office occupancy costs enables a renter to exert greater influence over their business’s future.

What are Office Condominiums?

From an investing standpoint, the perks include the opportunity to deduct depreciation and interest expense, as well as profit from the long-term capital appreciation of a good asset. In addition, owners that foresee expansion can acquire a larger unit and sublease the additional space to a third party until they are ready to expand.

Consequently, the owner of a developing firm is not penalized by higher rental rates at the time of expansion, and the sublease tenant subsidizes the costs of the future expansion space.

In addition to the long-term financial benefits, owners enjoy managing their own premises with the ability to manage all aspects of design and operation for their unique usage and occupancy.

In the meantime, the condominium’s management team handles the management of the property and its building systems, providing the owner with the best of both worlds.

Moreover, a Unit Owner can confidently invest in construction and improvement costs for a condominium office building, knowing that the property is theirs to maintain.

Such an investment in upgrades under an office lease would be forfeited by the tenant and become the landlord’s property upon lease expiration. Lastly, there is a general sense of personal pleasure that comes with having your own office.

What is The Process For Buying And Selling Office Condominiums?

Due Diligence

The buyer’s due diligence is already provided in a detailed report known as the “Condominium Plan.” Prior to launching an offering for the sale of office condominiums, the Sponsor must submit the Condominium Plan for approval to the office of the Attorney General of the State of New York.

What are Office Condominiums?

The sale of office condominium units cannot begin unless the Sponsor has received written confirmation from the Attorney.

General’s office affirming that the plan for selling office condominiums satisfies all standards for complete disclosure and adequately outlines the planned operating guidelines for the office condominium property. Every potential purchaser is given a copy of the office’s Condominium Plan.

No Undisclosed Deferred Maintenance Issues

The principal concern of the attorney general’s office when approving condominium plans for marketing is to ensure that the Sponsor provides prospective buyers with a complete and detailed description of the property. Landlords that lease office space to renters are not compelled to provide this information.

However, the sale of office condominiums requires the inclusion of a detailed property report prepared by a certified architect and engineer as part of the Condominium Plan for all prospective buyers. Any prospective maintenance issue or required capital improvement must be specified as a “Special Risk” in the Condominium Plan.

Executing the Contract

After examining the architect and engineer’s report and selecting an office condominium to purchase, the prospective buyer will execute the same type of contract as included in the Condominium Plan and place a ten percent deposit with the escrow agency.

The office condominium unit will not be available to other market buyers at this time. As soon as 30 days after the date of contract completion, the sale could be finalized.

Available Financing

There are a variety of financing options available for office condominiums.

What are Office Condominiums?

Aside from the traditional real estate mortgage division of a financial institution, loans for purchasing an office condominium are also available (and frequently at more advantageous terms) through the “business” sector of banks — the same banking division that handles a company’s business banking services.

In addition, the Small Business Administration (SBA) and the International Development Association (IDA) offer loans to small enterprises and nonprofits, respectively.

Conclusion

Office condominiums are office buildings that have multiple tenants in one building. These buildings are usually used by professionals who need large amounts of space. Most condominiums have high quality office space and professional services. These are perfect for companies who use a lot of paper or need an extra office space.

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