Office condominiums take growing role in US economy
Renters beware. "Condo-mania" is threatening to sweep the office market. "It's probably the wave of the future," says Joseph Moore, president of the Baltimore Financial Corporation of San Francisco, which expects to become involved in financing $300 million worth of office condominium projects in the Western United States this year. "It's just a matter of time."
Elliot Lewis, president of Sanford Goodkin Corporation, a real estate research group located in Delmar, Calif., agrees. "There's a very great movement in that direction," he comments. "A year ago it would have been hard to find a half dozen in the Orange County-Los Angeles-San Diego area. Today there are 30 to 50 in various stages of development."
The West Coast seems to be at the forefront of the activity just at the moment, but there are signs that the trend is creeping eastward.
Daniel Rose, president of Rose Associates, a New York-based developing firm, says that although few office condominium projects are under way on the East Coast right now, interest is strong, and he expects the trend to hit before too long.
"It's logical kind of development," he comments. "The major impetus in the condominium movement is inflation, and as long as inflation continues, the tendency [toward office condominiums] will spread."
Robert Fridstein of Fridstein & Murray, developers in Northbrook, Ill., who have been involved with 23 office condominium projects, says that "considering the lousy market, we've been pretty successful." He concedes that "high interest rates are a problem," but adds that "people who can get financing love [office condominiums.]"
Financing has been an obstacle for developers. A tight credit market combined with reluctance on the part of financial institutions to plunge into anything too new makes funds hard to come by.
However, Elliot Lewis predicts, "If the developer is credible, the financing is there, and if the time is right, they'll do it.
Will the trend become a boom, following on the heels of the residential condo craze? The question is still open for debate.The largest market for the condos so far has been among small businesses and professional groups, and most successful developments have been in suburban rather than downtown areas.Some developers predict that "condo-mania" will spread throughout downtowns and begin to draw larger buyers, but others temper their optimism a bit.
"It is a limited market," says Bill Schmiett of Wilson, Daughtry, & Butts Inc., developers located in Everett, Wash. "There's not going to be one on every block, but its going to be successful."
Some in the real-estate field are outright skeptical. The Marling Group Ltd. , a real-estate consulting and development firm based in northbrook, Ill., published a study in early 1981 predicting that office condos would never attain the market success earned by their residential counterparts.
The study, based on a national survey of developers and office leasing personnel, concludes that office condos will never appeal to more than a limited segment of the market. It spells out several drawbacks to the idea of office ownerships -- although condo developers are quick to counter all of them. Some of these obstacles include:
* Difficulties in expanding or contracting office space. As office needs change, the condo buyer could end up locked into an office too small or too large.
However, developers point out, it would be quite easy to invest in extra space and lease it out if not needed. Anyway, lease contracts often run for three to five years, and renting extra space is not always easy either.
* The absence of tax advantage. Office rent is tax deductible, so ownership does not present any special tax benefit.
But, counter the developers, if the business owners buys the condo himself and then rents it to his business, he can claim a personal tax deduction on the office unit, as well as writing off the rental costs for his business.
* The resale market. Because the office condo idea is still young, the resale market is an unknown quantity.
Developers, however, scorn fears about resale. Says Bill SChmiett, "If there's a need for that kind of space right now, there'll be more need later."