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So often, folks in my profession are focused upon the reasons TO do something – like sell your commercial real estate. After all, we make our living selling and leasing buildings.
However, sometimes there are compelling reasons to NOT sell your commercial real estate. Today, I would enjoy sharing a few of those reasons with you.
No transition. As we recently discussed, a sale decision is generally preceded by a transition of some sort – such as selling the business that occupies your commercial real estate. If you no longer own the “tenant”, the occupying business, you may prefer to not be a landlord – thus your motivation to sell. However, in the absence of a transition, why sell?
Tax consequences. The sale of your commercial real estate will create punitive taxes that must be paid or deferred. In some cases, the tax man will claim 35-45% of your sale proceeds. Some sellers analyze the after tax proceeds of a sale and determine selling is not a viable option.
No place to move. Southern California has the lowest vacancy of available industrial buildings ever! 98 of every 100 buildings are occupied with very little turnover. If you sell the building that houses your business, where will you move the business?
A very low basis. Remember the tax consequences we examined above? The taxes are generated by the difference in the current selling price and the price you paid – know as your gain. If you purchased your commercial real estate many years ago, chances are your basis is low. If you’re fortunate to own your building with no debt – even better! The resulting occupancy costs for a tenant are also low. In the halcyon days, you reap the rewards. When things are a bit tougher, you can afford to lease your building for less because you have no mortgage payments.
An irreplaceable location. Akin to an ocean front cottage, certain commercial properties enjoy locations that cannot be replaced. This could be a main boulevard frontage, proximity to amenities – hotels, restaurants, or entertainment, favorable zoning, special purpose improvements for your business – ISO 9001 certifications, certain use permits, or an abundance of electricity.