Commercial Condos




By Ruth Carlson sanjose@bizjournals.com "It's a horrifying experience," says Delyse Nash as she recalls renting office space in San Jose, After her third move in five years, the president of DNA, a headhunting firm for financial professionals, made sure she'd never have to move again. Ms. Nash became one of the growing number of small business owners who have bought commercial condominiums. "My controller suggested I buy my office," says Ms. Nash. "I asked her, “Why would I want a big building?" The controller, who showed her the new commercial condominiums on Technology Drive near the San Jose airport, was apparently persuasive. Ms. Nash purchased one of the condos and leased it to her firm. Buying the condo, compared to renting, turned out to be a wash financially, says Ms. Nash. "I only pay $200 a month more now and the tax benefits are excellent," she says. "Plus I'm benefiting from the appreciation of the condo," Most importantly, she adds, “I never have to worry about the rent increasing again. if I need more space, I'll rent this condo to another business and buy a larger one." "Commercial condos have a large demand that has hardly been tapped," says Geoff Davis, president of San Jose's DBC Commercial Group. Noting that little space is available for companies that need between 800 and 2,000 square feet, he predicts that some vacant buildings downtown will be converted into commercial condos. After the dot-com crash and 9/11 attacks, many commercial buildings in Santa Clara County sat vacant. "Borelli (Investment Company) and others said let's convert warehouses into smaller spaces and sell them as condos," says Mr. Davis.	"We did it out of necessity," says Ralph Borelli, president of Borelli Investment Company in San Jose. He began converting vacant office buildings to commercial condos 15 years ago. "The market was tough back then and selling the space provided an exit for us," says Mr.Borelli. Since then Borelli Investment has been converting space, including the build-ing occupied by DNA – by choice. "We've always been involved in incubators and small spaces in free-standing buildings, so commercial condos ware a logical extension," he says. "Business really picked up in the South Bay last year and I haven't seen any slowdown yet. It’s a trend that is picking up steam across the country" "It's an exciting ride for us, very experimental," says Robert Eves, president of Venture Corporation, a Mill Valley firm that builds new commercial condominiums. In 2001, he says, "Our market came to a screeching halt as it did for everyone in Northern California. Silicon Valley went from not a single square foot of vacant office apace to 70 million square feet of empty buildings," What turned things around for Venture Corp. was a phone call from a dentist in Morgan Hill. "He was in practice with his father and after 27 years of paying rent," says McEves, "he finally convinced his dad that they should buy their office property and get the benefits of ownership that larger companies have enjoyed." The dentist wanted a 2,200 square feel office and Mr. Eves, who was used to constructing business parks, didn't see how he could make money with an office building that small. A few days later he got two more calls from small business owners who else wanted to buy their offices. "We thought we should look at this," says Mr Eves. Venture Corp. built four small buildings in Morgan Hill with space for up to six tenants in each and, says Mr Eves, they sold out immediately.	Today Venture Corp. has commercial condominium developments up and down the state. Typically, they are two-story buildings that look like town homes, explains Mr Eves. There are no elevators or lobbies, people can drive up to their front door and see the name of their company on the front door," he says. "We make the condos turnkey. They (the buyers) are not sophisticated real estate investors and we make it simple to manage and easy to buy with 90% percent financing." Many commercial condo owners also obtain financing from the Small Business Association. Mssrs. Borelli and Eves say those who buy commercial condominiums run the gamut from architects to software firms. Prospective owners should take into account factors such as building maintenance. “1 was surprised at how high the condo fees were, especially since they didn't cover janitorial services," says Ms. Nash. Despite the added cost, she says she's very pleased with her decision. "Its one more notch in our belt," she explains. "Our clients know that we are here to stay… we own the building." RUTH CARLSON is a freelance writer based in Santa Cruz