Your Company Is Bursting at the Seams: What’s Next?

Follow this advice if it’s time to consider buying a commercial property to allow your utility contracting business room to grow.

Your Company Is Bursting at the Seams: What’s Next?

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Operating a business from a shop in your backyard and a home office may be practical for very small businesses. However, as a wastewater business grows, the need for space likely grows, too. Once a business starts hiring employees or adding services, it may be time to find a commercial facility.

Leasing a facility is a good option for many contractors, but nothing compares to having your own space. Owning a building allows you to renovate, expand and brand the facility to your liking. Additionally, buying a property adds an asset to the business. The property becomes part of the owner’s and company’s financial portfolio. Potentially, a facility can be part of the owner’s retirement plan. Upon retirement, you can sell or lease the commercial property to a successor or another company.

Get some help

The first step to buying a commercial property is meeting with a banker or lender, says Nate Gamlin, broker-owner at Big Woods Realty in Wausaukee, Wisconsin.

“You don’t want to spend a lot of time looking at properties that the bank isn’t going to cover,” he says. He recommends sitting down with a local banker to determine what’s affordable and arrange financing, possibly through a U.S. Small Business Administration loan. When financing is set, it’s time to work with a real estate agent who has experience in commercial property transactions.

Business owners may not have the time to research properties on the market, so that’s where a real estate agent steps in. Through most real estate agencies, you can work with a buyer’s agent who guides a buyer through the purchasing process and looks out for the buyer’s best interests. “It doesn’t cost the buyer anything extra,” Gamlin says.

A buyer can set certain parameters related to price, size and location, so the agent can pre-qualify buildings to bring to a buyer’s attention. Typically, a commercial building will have some combination of a showroom, conference room, individual offices or cubicles, a break room, restrooms and equipment/inventory space.

A contractor with trucks and heavy equipment will want additional amenities. For example, how important is it to park trucks and equipment indoors? The value of having them locked up, easily accessible for maintenance and protected from the elements, especially in the winter, is probably worth the investment. Getting into a nice, warm truck in the morning beats the alternative.

Zoning

Sheds, shops and outbuildings may also be must-have facilities for septic and drain companies. However, zoning ordinances may restrict the number and size of buildings on a property. Zoning ordinances can get in the way of purchasing a property if the intended use doesn’t comply with zoning ordinances.

“Depending on where you want your business to be located, zoning can be a big issue. In larger municipalities, you’re going to have very strict zoning,” Gamlin says. This may be a particular challenge for companies that convey or store wastewater as part of their operations.

Generally speaking, commercial zones group similar businesses in one location. Commercial zones have accommodations for traffic flow, parking, signage and other business amenities.

“There are different levels of commercial use, and there could be a wide range they qualify for,” Gamlin says. An unsuitable zoning ordinance doesn’t necessarily kill the deal. A buyer can add a contingency clause to an offer to purchase, contingent upon the approval of a zoning change, variance or conditional use permit.

Contingency forms

Another factor to consider when buying a property is the potential for environmental hazards, like underground storage tanks or contaminated soil at the site.

“Anytime you’re buying any property, but especially commercial property on busy roads, there’s a potential for some hazards,” Gamlin says. Environmental problems can be costly to correct and can reduce the value of the property when reselling. Gamlin recommends completing a standard environmental hazards contingency form when making an offer to purchase. That way, you can get out of the deal if there are hazards that require expensive or lengthy remediation.

Contingency forms also cover issues related to a property’s title. An attorney or title company can determine whether something in the title could affect ownership for you or buyers in the future.

Issues with the property title may include:

Easements: A legal right to cross or use a property for a specific purpose, like a utility company’s easement to erect power poles.

Encroachments: A neighbor’s building, fence, tree or other fixture crosses the property line.

Claims against the property: A tax lien or creditor’s lien that needs to be settled before a property sells.

Private-use restrictions, also called covenants or agreements: Examples are setbacks that regulate the minimum distance from the street, road or other structures; specific uses are prohibited; the building size and number of buildings are restricted.

Past issues with the property’s title.

These issues aren’t necessarily deal-breakers. However, it’s important that buyers are aware of these legalities before closing on the sale.

“This sounds overwhelming,” Gamlin admits. “Buyers think they have to figure out all of this stuff beforehand, but it’s all right to make an offer assuming everything’s OK and have time to get it checked out.”

Check it all out

When evaluating a property to purchase, Gamlin recommends checking it over inside and out.

“Sometimes you spend so much time looking at the building, but not the land,” Gamlin says. You might miss the potholes in the parking lot or the small space to pile snow — hauling snow gets to be expensive. Snow removal, lawn mowing and landscaping expenses are easy to overlook when shopping for a commercial facility, yet they can add up quickly.

Other expenses are more obvious. Be sure to find out what the previous owner paid for property taxes and utilities. “Everybody’s utility use is a little different,” Gamlin says.

Location is another factor to consider. A busy street has the advantage of exposure. Signs and company trucks parked outside can capture the attention of passing traffic. However, a busy street might make it difficult for trucks to enter, back up, park or merge into traffic.

When evaluating properties, consider the value of a drive-through truck bay. Trucks enter through one door and exit through another, without having to back in and out. Convenient, safe and time-saving all at once. A drive-through bay may not be feasible at the properties on the market, but there are alternatives.

“Driveways and parking lots obviously are important parts of the business. You want traffic to flow, and you want it to be obvious where there’s customer parking and employee parking and a separate area for equipment,” Gamlin says.

Any agreement to share a parking lot or driveway with a neighboring property needs to be detailed and understandable, he advises. “Nobody wants to argue with the neighbor.”

Nobody wants to argue with tenants, either. While some commercial properties on the market are vacant, others are leased. Gamlin recommends reading the lease agreement and understanding the tenants’ rights before placing an offer to purchase. Sharing the space may be beneficial, especially since rent payments can help cover the mortgage.

With any purchase, there will be trade-offs, but that’s OK, Gamlin says. “Don’t worry about having everything you want right away.”

Companies can purchase a commercial building with a lot of potential, then renovate it to suit their needs. “You can always get a property with plenty of room for expansion. It’s easier to add on than start at a new location.”

Choosing a location depends upon what’s available near your customer base, what’s affordable, and what fits your business operations. No property will be perfect, but renovation or expansion can bring the property closer to your ideal facility. There’s bound to be trade-offs, but purchasing an existing property typically is less expensive than building new.

Finding a commercial property that’s right for you will take some time and research. Working with an experienced commercial real estate agent can simplify the process. Outgrowing your current space isn’t such a bad problem to have, because it means the business is prospering. You’re ready for a commercial facility that’s bigger and better, signifying a bright future. 



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