Buy or lease?

[Craig Dhonau]

For anybody that's pulled the trigger,

If you had to do it again, would you buy or lease? I think I've finally found some warehouse space that may work for a small packaging brewery for a good price, but there may be another location for sale. There are obviously differences between the two, but any general experiences would be appreciated.

Thanks,
Craig.

[Brewtopian]

If you've got the capital and you think this facility will suit your needs for more than 5 years then I would say buy. We've been looking at this same thing on a few retail properties and prices to purchase with 5 to 10% down save us a lot of money over paying rent every month and we have an asset that we can turn to in the future to help us get additional capital for expansion.

[ChesterBrew]

Personally, I think buying is the better way to go if the numbers work (strangely enough, it's cheaper to lease than buy in my neck of the woods right now.)

Breweries oftentimes require significant and specialized modifications -- not having to go through a landlord to require every slab cut, plumbing and electrical upgrade, etc. is definitely a plus.

[Craig Dhonau]

Thanks for the replies,

Both great points that I've thought about also. I'm leaning to lease if the landlord is as accommodating as I've heard; the location and price are pretty good. On the other hand, he has an acre across the street that is vacant; maybe he would sell.

Thanks again.
Craig

[Brewtopian]

There's a difference between leasing, buying and building from scratch. Buying an existing building compared to buying a lot and building from scratch are completely different.

In a down market like this you can get an existing building far far cheaper than buying dirt and building on it. The cost of construction hasn't come down but the cost of real estate has. If you're wanting to build on that 1 acre lot your best bet would be to propose to the owner that he do a build to suit for you. This way you get the benefit of a custom built structure and the owner essentially subsidizes your construction. You'll still be leasing but you would have a space designed to your specs from day one vs trying to make something else suit your needs.

In terms of long term expense though I would think that the best option is to buy an existing structure. Short term, a lease is the best way to go. You might be able to bridge these two options by negotiating a purchase option on the leased space.

[Craig Dhonau]

Brewtopian,

After meeting with the owner, your build to suit idea is looking pretty good; he doesn't seem too keen on any floor/drainage modifications. I did leave a deposit to buy some time, the price is good. At 35 cents a square foot I think it'll go quick. Hopefully we can work something out.

Craig

[Fullcourt]

As a Commercial Real Estate Broker, let me say that your total time to open your doors will be much shorter with an existing building. Starting with raw land, there are many more city and county hurdles to overcome. It is much easier to get permission to modify an existing situation, than start from scratch.
Local governments use the construction of a new building to reap fees, impose more stringent requirements, and also demand new design controls, than in an existing building.

[JJDay]

To add to the Real Estate Broker's point, depending on your state and municipal laws, there might be fiscal benefits to each solution: What is good in one city/state, will not be the case in another.

While some people might not like accountants/fiscalists, they can guide on the overall cost: tax deductions, municipal grants.

The economic benefits must be tallied/weighed taking all parameters into consideration: Direct/indirect costs; grants; tax deductions; building owner/contractor support etc. One might be surprised of the result when all numbers are crunched.

Good luck - JJD
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