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FROM THE FOUNDER
Owning your own office facilities
I t’s interesting to me how many architects and engineers who own their own businesses and serve developer clients don’t understand how they themselves could benefit from commercial real estate ownership – either through their business, or with a separate entity outside the business that leases space to the business. Leverage construction loans for AEC business real estate ownership, enhancing assets and financial health.
Mark Zweig
Most think they can’t afford it. They are already undercapitalized. How could they buy a building when that typically would take a 20-25 percent down payment, plus require them to do all of their own buildout, when they can probably get their landlord to finance a lot of that to them through a long-term lease with higher rent. The answer is to do what your landlord does! Whether you want to do an all new greenfields build, or buy an existing building and renovate it to meet your needs, the process and vehicle you can use to finance it is pretty much the same. Use a construction loan! Here’s how that works. Let’s say you want to build a new 40,000-square-foot office building for your firm. You will plan on using 25,000 square feet for
yourselves and lease out the other 15,000 square feet so you have some space for future growth. So you find an available site, design your building, and then go to the bank to get a construction loan to build it. Depending on your company’s or your own financial wherewithal, you can probably borrow about 80 percent of the completed value of the building in a construction loan. A construction loan is a one-way line of credit. It goes up but doesn’t get paid off until you are finished with the project and convert to an amortizing loan. So in my example, let’s say that your construction cost estimate for this building, designed and built out to your spec, is $9 million. You can get it down that low because you are not only designing it, but you also
See MARK ZWEIG, page 6
THE ZWEIG LETTER JANUARY 22, 2024, ISSUE 1521
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