Retail condos, according to a recent article in the San Francisco Business Times, are becoming a popular alternative for small businesses. Owning your own space instead of renting it is a great way to for shop owners to eliminate ugly rent increases when it’s time to renegotiate the lease. It also eliminates the threat of a landlord easing you out when more favorable tenants come a courting. .

Many developers also see a benefit to retail condos.  With hundreds of living spaces stacked on top of one another in neighborhoods like Mission Bay or SOMA, retail goods and services that can serve the residents is a big draw. Usually the market for a retailer lives within 1/2 a block,  so these larger new building off an immediate customer base. Whole Foods Market, which occupies two contiguous commercial condos on the ground floor at The Potrero, is a perfect example. The store is one of the project’s biggest draws for prospective buyers who love the idea of running downstairs for a cup of Peet’s or healthy grab-and-go food.

To buy their condos, many small businesses are turning to the SBA’s 504 loan program. These loans are designed specifically for property acquisition and only require 10% down. That’s far less than the 25-30% a traditional lender requires for a commercial investment.

(Caveat– last I heard, the SBA loan process is onerous and requires copious amounts of paperwork– so look carefully before you leap at this option).

Purchase prices for new retail condos run about $500/square foot.  but you can occasionally find a retail space in an older mixed-use building. Right now there’s a storefront office on Divisadero at Pine– approximately 750 square feet listed for $429,000, and a tiny storefront at the corner of  Larkin and Jackson that used to be a nail salon listed for $155,000. Keep in mind that both of these listings are TIC units and will not qualify for the SBA financing.

At Paragon we have a handful of commercial condos for sale and/or lease along the Van Ness corridor.  Please call me if you would like more information.

Purchase prices for retail condos in the city are running around $500 per square foot, she said. The demographics for the buyers of the new residential condos are also attractive — lots of young couples without kids and downsized baby boomers who are clearly not living on fixed incomes.

Retail condo buyers, House said, represent a varied landscape — restaurants, home decor, wine bars, coffee cafes and service business that include optometrists, dentists and spas.

Things to ponder
Business condos certainly come with their own set of potential problems — just as with residential condos, retail condo owners are part of an owners association and must agree on marketing decisions, which might include who they allow to buy in the building and other provisions. But there are no lawns for a neighbor’s dog to soil and no one will complain about late night piano practicing.

Some developers and management companies are being as cautious as little old ladies crossing a busy street — building in soundproofing, extra ventilation and thicker walls and flooring to buffer upstairs tenants from restaurants. One Florida mixed-use project, next to a busy port, is requiring that residents to agree not to sue over noise.

This entry was posted on Wednesday, April 30th, 2008 at 3:36 pm and is filed under Buying Strategies, Investors. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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