In my other blog articles, I’ve shown how office condo ownership can provide significant savings over leasing. Here, I’d like to show how some office condos provide more savings than others. In this case, a $7 savings on condo fees provides the same benefit as purchasing for $100 per square foot less. On a 10,000 SF space, that savings can equate to $1 million.
Whether you own or lease, there are basically two components of occupancy cost:
(1)The net rent (leasing) or debt service (owning); and
(2) the operating expenses (leasing) or condo fees (owning) which for purposes of this discussion include real estate tax.
Looking at the office condos I am marketing at 901 Clint Moore Road in Boca Raton, the condo fees are $4.33 per square foot. Real Estate Taxes are estimated at $2.62. One of our primary competitors has condo fees that are over $11 per square foot, or over $7 more than ours. Their taxes run about $1 per sf higher than ours as well. The total difference is close to $8.50, but let’s use a conservative $7.
Assuming we borrow $180 per square foot for 25 years at 5% interest, our annual debt service would be $12.63 per square foot. Excel formula ( =pmt(0.05/12,300,180)*12 ) Add $4.33 in condo fees and $2.62 in taxes and we get a gross cost of occupancy of $19.58. (electric and janitorial are billed separately) By the way, the net rental rate on comparable space in the market is $15, well more than the debt service to a buyer.
If we borrowed at $180 per sf at our competitor’s property, our gross cost of occupancy increases from $19,58 to over $27. This is still well below the top rental rates in Boca Raton which in some cases exceed $50 gross. But the $7 savings should get your attention. You do get more amenities for the $7, but is it really worth it?
So how can $7 per SF save you $1 million? If we wanted to finance $100 in property cost at 5% over 25 years, our monthly payment would be $7.02 per square foot. Excel formula ( =pmt(0.05/12,300,100)*12 ) Therefore by saving $7 in condo fees, your cost of occupancy is the same as it would be if you payed $100 less per square foot for the property. If you were to purchase 10,000 square feet, that savings would be $1 million.
Insert your disclaimers here – your mileage may vary and this admittedly may stretch the bounds of logic. But the numbers certainly support the claim. Regardless of your interpretation, there are significant benefits to office condo ownership and even more benefits if your office condo has competitive condo fees.