Commercial Real Estate: How to Buy Big When Your Business is Small

Commercial Real Estate: How to Buy Big When Your Business is Small

Small businesses come in many sizes, offer different goods and services, and operate out of all sorts of spaces. Some conduct business out of the home while others share rented office space or temporary locations. If you decide that you have outgrown your existing place and are looking for a bigger, more long-term solution, there are things to consider before buying commercial space. A small business attorney will help you with all of your real estate decisions from taxes and insurance to location and protection. This post will discuss how to determine if your small business is ready for the transition to commercial real estate and how to secure the financing you need to make the purchase.

Five Questions Before You Make a Real Estate Investment

What is commercial real estate?
Commercial real estate refers to buildings or land intended to generate a profit. It can be divided into several categories, including office buildings, industrial, retail, restaurant, multifamily, undeveloped land, and more. Each type of commercial property is subject to numerous laws – contract, insurance, disclosure, landlord/tenant, and others – as well as Colorado state zoning and land use regulations.

How long have you been in business?
You are a well-established business in your neighborhood or district, and you have no plans to leave the area. Perhaps the space you have been renting suits your business, or you have found a great location nearby. Buying seems like a good idea, but even if you have been in business for 10 years, lenders will want to see that you have been profitable for at least the past few years.

What are your future goals for the business?
Be sure to align your business plans with your location. If you overestimate how quickly your business will grow, you may find yourself with too much space and a hefty mortgage. If you underestimate the potential success of your business in its new location, you may be unable to make necessary renovations and outgrow the space too soon. These two scenarios could be a big problem if the real estate market is down compared to when you originally purchased the property.

Will you benefit tax-wise from commercial property ownership?
If you are a C corporation (C corp) with 40 owners, it may not make as much sense to own the real estate as it does for a mom-n-pop limited liability corporation (LLC) that will benefit more from ownership. Talk with your small business attorney to determine if your business structure is the right one, especially for tax purposes.

Should you change your business structure?
The structure of your business will not only affect your tax obligations and liability, but it may also affect your ability to secure financing. As a sole proprietor, you are responsible for all debts and obligations, which is a deterrent to some investors. With an LLC, there is no limit to the number of owners; whereas, an s corporation is limited to 100 owners. C corporations are attractive to venture capitalists because of the unlimited number of owners and because there is no income tax liability. There are several other options for small businesses to secure financing.

Five Ways to Buy Real Estate as a Small Business

Small Business Association (SBA) Loans
SBA loans come in two types – the 7 (a) and the CDC/504. The 7(a) is a 90% government guaranteed bank loan, and the CDC/504 is a 50% first loan from a back and a 40% second loan from the government. SBA loans offer fixed interest rates, small down payments, the ability to finance building improvements, and a variety of lending sources. However, there is a lot of paperwork, employment criteria, and strict onsite occupancy rules.

Bank Loans
These conventional loans are not as simple as they used to be. There are fewer commercial banks, and even those prefer SBA originated loans because the government backs a percentage of it. If you can afford a larger down payment and are in good standing with your bank, you may secure a loan with less underwriting criteria and more flexibility in repayment.

Seller Financing
This is a direct seller to buyer arrangement. When sellers own a building outright, they can offer better interest rates than other lenders. Seller loans are even more flexible because you are dealing with an individual. While they are not as common as they used to be, these loans often entail fewer fees and a lot less paperwork

Third-Party Financing
Much like seller financing, third-party financing does not come with as many stringent rules as bank loans. Although we do not all have a relative or close friend with a million dollars they would like to loan to our business, these loans can be made quickly without the same environmental or appraisal requirements other lenders would have. There are drawbacks, of course, as no one wants to drain their grandmother’s nest egg or have to endure a foreclosure experience with someone you know or love.

Purchasing the Building for Cash
Probably the most elusive way to buy today, paying for a property in cash is also the most simple. You could buy the property as a sole proprietor or LLC, the lease it to your company. If you can truly afford to do this, be sure you are not sinking 100% of your available cash into the real estate. One of the biggest benefits of this method is that you can charge your business rent, which puts cash back into your pocket.

When it is time to establish or expand your business by moving to a commercial space, your small business attorney will ensure you are prepared for the process in order to ease the transition and maximize the benefits.

If you need help with commercial real estate law, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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How to Navigate Denver’s Commercial Real Estate Market

How to Navigate Denver’s Commercial Real Estate Market

There may come a time when your small business has outgrown its retail or home office space. This is great news as it means you are ready to expand. It also means you are about to jump into the competitive pool of Denver’s rapidly changing commercial real estate market. With developers scrambling to keep up with demand, every size and type of real estate – from historic manors and Beaux-Arts buildings to factories and warehouses – is being repurposed for trendy niche retailers and giant corporations alike. The average asking lease price for warehouse space in some neighborhoods jumped by more than 50 percent from 2010 to 2015. By the end of 2016, retail development hit its highest levels since 2010 with nearly 1 million square feet under construction according to the CBRE. Without a team of professionals on hand, like larger organizations have, a small business attorney can help you make decisions about location, leasing or buying, tax deductions and compliance, and protecting your assets. Whatever type of retail space, office, or other commercial property you may need for your flourishing business, consider these five helpful tips before you commit to a contract.

  1. Make a New Plan
  2. Choose the Right Location
  3. Decide Whether to Lease or Buy
  4. Have Exit and Dispute Strategies
  5. Know What You are Signing

1. Make a New Plan

Even if you have been in business for years, you need a revised plan for your expansion. Consider your needs versus your budget. Do you have the resources to close on a property or repay a loan? A solid business plan is an important factor for lenders who are considering your loan application. Within your business plan, lenders are looking to see whether you have a marketing strategy – have you considered your competitors? The habits of your targeted customers and neighborhood? A back-up plan to deal with the pitfalls? A small business attorney will help ensure your plans and real estate choices are realistic and the best for your business.

2. Choose the Right Location

When selecting the area or neighborhood for your business, there are many factors to consider. Demographics, surroundings, centrality, visibility, and compatibility with your desired image are a few of the areas you should research before choosing your location. You would also benefit by researching forecasts and trends for the district (e.g. new projects, funding, crime rates, and other public records that may affect your business). It is essential to be aware of the current and potential value of the properties you look at, especially if you are going to buy rather than lease.

3. Decide Whether to Lease or Buy

A storefront or office space can boost your business’s image. Commercial real estate not only provides a dedicated space outside of your home, but it can help with marketing. As with most real estate, buying commercial real estate is more expensive in the short term than leasing, but less expensive over the long term if you intend to stay in the location. While buying gives you more flexibility and an asset to use when financing other parts of your business, it also means you are responsible for all aspects of your property, including maintenance and additional liability. An attorney will help you decide whether leasing or buying is right for your business.

4. Have Exit and Dispute Strategies

It is important to have an exit strategy if your business does not perform as well as anticipated or your plans have simply changed. What if you can no longer afford the property? What if unexpected factors in the area are negatively impacting your business? What if you decide to sell the business? You should be prepared for these types of scenarios as well as any arising disputes. Tenants of commercial property have fewer consumer protections, and leases are binding contracts. To avoid conflict or severe penalties, be sure to have your small business attorney review any lease or purchase contracts before you sign.

5. Know What You are Signing

By this point in the process, you may be fairly familiar with the world of commercial real estate and its accompanying laws: landlord/tenant laws, disclosure laws, zoning laws, contract laws, insurance laws, etc. Leasing or purchasing agreements fall under contract law and can be very confusing. Your attorney will go over these contracts with you line by line until you fully understand what you are signing in order to prevent any surprises or compliance issues in the future.

If you need help with leasing or buying commercial real estate, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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Millennials, E-Commerce, and Denver Real Estate

Millennials, E-Commerce, and Denver Real Estate

Headlines and ratings have Colorado at the top. Denver has been consistently ranked as one of the best cities to live in by U.S. News and World Report. Denver was also first in 2015 and 2016 for best places for business according to Forbes. These accolades are in addition to the state’s impressive roster of colleges and universities, not to mention its luscious landscape and booming retail scene. This all translates into a desirable place to live, which affects your business decisions. A small business attorney will help you with all of your commercial real estate needs from setup to leasing or buying to protecting your assets.

The Millennials Are Coming To Colorado

Colorado has steadily become a migration destination in recent years, and according to a Denver Post article, there is an influx of millennials. Like many groups, millennials like to live in areas where there are other millennials, and this group uses social media to share their day to day experiences. This, in turn, contributes to a momentum of migration, which has a major impact on the real estate market. A Biz Journals article reports that Denver’s retail real estate market is expected to be the “world’s hottest” over the next few years, second only to San Francisco, and that the retail market will outperform all other global retail markets. With all of the positive reports and growth comes competition for space and rising rental rates. If you are renting commercial space for your small business, you may not be able to afford hikes in rent. As a landlord, tenants may be harder to keep or come by. Because the millennials are coming to Colorado in droves, there is a tight real estate market. A tight real estate market means there is more at stake, leading to more potential legal disputes. Careful review of your lease is critical in these times, and a small business attorney can help you with all of your contracts and agreements.

E-Commerce Is Everywhere, Even If Your Business Is Only In Denver

Defined as a transaction of buying or selling online, e-commerce has expanded rapidly over the years and is accelerating. Boundaries between electronic and conventional commerce have become blurred as more and more businesses move at least portions of their operations onto the internet. All businesses employ some form of electronic applications whether through email, online catalogs, e-newsletters, digital coupons, social media marketing, or countless other transactions. Amazon, an e-commerce revolutionary, just opened its first fulfillment center in Aurora, Colorado and is reportedly looking for a downtown Denver office location. While a 452,000 square foot industrial location is not exactly small retail real estate, having big e-commerce and tech companies opening offices in Denver affects all sectors of commercial real estate, employment, and retail. So whether you have a brick and mortar storefront or work from home, a small business attorney can advise you about operating in an increasingly virtual market in conjunction with an increasingly competitive real estate scene.

Owning Or Leasing Retail Space In Colorado

You know Denver is the place for your small retail business. You confidently cater to tech savvy and discerning tastes. You have a solid online presence. So, what do you do if your retail space no longer meets your business needs? What if you cannot afford increasing rent costs? It may be time to find another option or location. If you are unsure of the future of your business and its size, you may be better off continuing to lease or sublease. However, if you want to stay in a particular district or neighborhood and have no plans to expand, then you may want to buy rather than rent. A small business attorney will help you decide whether to rent or buy and guide you through locations and spaces as well as the accompanying leases and contracts.

If you need help with your e-commerce and Denver real estate options, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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5 Crucial Areas of Commercial Real Estate Law for Colorado Businesses

Real estate law is a broad and complicated legal area. Colorado is no exception with a tangled mass of statutes on everything from discloser and zoning laws to insurance and contract laws. Whether you lease or own your business location, you will likely encounter a property law issue at some point. Attorney Elizabeth Lewis, MS, JD can help guide you through real estate law at every level before it affects your business. The following post will discuss five crucial areas of commercial real estate law for Colorado businesses.

  • Landlord/Tennant Laws
  • Disclosure Laws
  • Zoning and Land Use Laws
  • Contract Law
  • Insurance Laws

Landlord/Tennant Laws

Whether you own or rent your business space, landlord/tenant laws are designed to protect the rights of both sides who have entered into a rental or leasing agreement. There are numerous areas within these laws, including taxation, right of privacy, payment of rental fees, disclosures, duration of agreements, and right to terminate agreements. As a Colorado business owner, it is essential to comply with state laws in order to prevent violations. It’s a good idea to hire a Colorado-based attorney to advise you on all of your real estate and leasing issues from initial set up to lease/contract review to protecting your assets.

Disclosure Laws

Before you buy or rent a business space, you want to know everything you are getting into. Are there any toxic substances, like asbestos or lead paint? Does the building have energy use restrictions or accessibility inspections? You may have found the perfect location, nestled in the bustling heart of downtown Denver, but it is important to know what you may not readily see. Like other real estate laws, discloser laws vary from state to state and deal with the location, condition, and restrictions of the property. Furthermore, a commercial lease and residential lease differ greatly and are subject to different laws. A small business attorney will review and advise you on existing or potential factors before you are ready to lease or buy a retail space.

Zoning and Land Use Laws

Your real estate choice, whether you operate out of a home office or huge warehouse, will affect your business. Commercial real estate can be divided into several categories, including office buildings, industrial, retail, restaurant, multifamily, undeveloped land, and more. Each of these properties are subject to Colorado state zoning and land use regulations.

Besides determining taxation, these laws define and enforce how a property is used. As a business owner, you already have a checklist a mile long when it comes to choosing your location – rent or buy, physical space, length of lease, affordability, renovations, maintenance, competitors, specifications for signs, accessibility, and much more. Learning that you must apply for rezoning to the local board is not something you want to add your list, and it does not guarantee that your application will be accepted. With the expert advice of an attorney, you can navigate through these real estate laws in order to select the perfect location.

Contract Law

After you have decided whether to buy or rent, reviewed the terms of disclosure, and confirmed zoning, you will enter into a contractual agreement. Specifically worded and structured, these legally binding documents are meant to stand up to any challenges by a landlord, tenant, or outside entity. Many savvy business owners have agreed to the terms of a contract only to fall victim to some unforeseen loophole or unintentional breach that leads to litigation. In this event, an attorney will represent you and help protect your business.

Insurance Laws

Based on the space you occupy and the business you operate, you are required to have certain insurance. This is to protect your investment and cover any property loss or liability issues. The type(s) of insurance you purchase depends on your status as lessor or lessee, the number of employees you have, as well as any building ordinance or state laws. In the unfortunate event of an accident, burglary, fire, or other disaster, additional insurance can help to cover the aftermath of damage to your business. A small business attorney can help you decide what coverage is right for you.

If you are a landlord or a tenant who needs help with Colorado commercial real estate, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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