Building Buyers Urged To Look Ahead

April 2, 2004
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GRAND RAPIDS — Many of the conventional signs indicate that a business boom is in the offing, if it hasn't begun already.

The conventional theory holds that no matter how productive existing work forces may be, expanding business activity eventually will force firms to start hiring and looking for more office space.

And as far as Chip Bowling is concerned, that means this is a particularly important time for business people to do a bit of unconventional thinking.

The conventional thing, said Bowling — of Grubb&Ellis/Paramount — is for the owner of an expanding business to close the deal and get moved. Now. Period.

But he said that since his title with the firm is office advisor, he urges people making such decisions to plan an exit strategy first.

"If you're a tenant and you need 4,000 square feet — you're a company that's growing quickly — and you come and hire me and say, 'Chip, we need 4,000 square feet. We're currently in 2,000.'

"And let's say," he added, "that you have a building in mind that the floor plate's only 4,000. Well, rather than complete the transaction, we would sit down with you and look at that. We'd look at how quickly your company is growing."

Bowling explained that even though the client might be eager to buy, it's Bowling's responsibility to at least get the client to look some distance ahead.

"We look at things and we might have to say to you, 'Look, although you like the building and the location, and right now for your immediate goals, it's good — but for your long-range goals, that's a bad move.'"

He explained that a building might look like a good buy at $80 a square foot, but will turn out to be a bad deal in six years if one can only resell it for $60.

"We've got a feel for where the market is going," he said. "And it's our job to at least shine a light on the things like that you ought to be thinking about," Bowling said.

"And if you're going from 2,000 (square feet) to 4,000, we have to ask, 'What happens after 4,000?' You outgrow the space and there's no room to expand. Although it addresses your immediate needs, it doesn't address your future needs.

"Which brings us to exit strategy," he said. "It may be you've got to move again in just a few years and moving is extremely expensive."

Even more expensive, he suggested, is having to sell an office building at a big loss.

He told the Business Journal he has seen situations where clients fall in love with a location or a building and — without thinking ahead — buy it for, say, $100 a foot. "Although that's a great location," he added, "if things are only selling at $80 a foot, that's not a good real estate decision."

He explained that people in his business are acutely aware of such long-term concerns. "Look, we specialize in real estate," he said. "A physicians' group is excellent at the practice of medicine, but they don't know real estate. And real estate is what we eat and breathe every day. We have a feel for where your market is going."

He said clients' long-range goals will drive their exit strategy, but that moving impulsively on a purchase or lease can preempt that strategy.

"What's interesting," Bowling said, "is that most buyers and most tenants never consider that off the front end, when it really should be the first thing they look at.

"A lot of times people are looking two, three years out when you should be looking five, seven, 10 years out.

"If you buy or lease," he said, "the deal's made on the front end, not the back end." But he said the long-term implications are on the back end and can bite deeply.

He said the old wheeze about real estate value being centered on location, location and location isn't necessarily correct in the long term.

"A lot of things are based on location," he said. "But a building and location may be perfect for one company, but not be for others.

"What we try to do is counsel them on the marketability of their current location so that when it comes time to sell, they can get their money out of it."

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