Commercial Insurance Blog

When we were still Andrew G. Gordon, Inc. we moved our office from cramped space in Norwell Center to new, expansive space on Route 53.  The experience of moving doesn’t come with a checklist; you have to figure it out as you go.  While we managed to do some things right, we did miss a couple items that we should have thought of and the overall result was probably as good as it could have been.  Complicating the effort was that we bought the building we would occupy, evolving from tenants to landlords.

Preparing for the purchase took more time and more expense than one might expect. Buying commercial property involves many of the same bank requirements as buying a home, including:

• Having a third party appraiser appraise the building

The appraisal is less about size and location, and more about rental income to service the debt.  The latter includes an analysis of the financial health of our company: as the anchor tenant, will we continue to do well?

• Environmental check

Is there pollution lurking under the surface?  If there had been pollution, the seller would have had to pay for remediation. 

• Estimate of cost of build-outs

We and the bank understood that we’d need to spend another $60 per square foot to prepare the space we’d occupy, that is to convert it from a furniture store with an open plan to an insurance office with a few new walls, two conference rooms, and new ADA compliant bathrooms.

• Legal services

The services of a legal expert is quite important to protect your interests as well as to assist with negotiating terms with the seller, and to identify any weaknesses with the tenant leases we’d inherit.  We used Steve Charlip of Charlip Law, and recommend him unequivocally for real estate law.  Steve was named a Boston “Super Lawyer” by his peers in 2011.  He is not only legally competent, but also easy to work with, and advocated for us when our interests and those of the bank’s diverged.

• Accounting services

Another expense, but paying for expert advice improved the economics of this deal incredibly.  We hired Jeff Hiatt of Cost Reduction Specialists to perform a cost segregation analysis that allowed us to take optimal advantage of real estate tax law.  They worked with our accountants Barneke & Anderson to provide detailed documentation to protect us in the event of an audit.

We were fortunate to buy the building in a relatively depressed real estate market, at very attractive terms.  We accepted bids from two banks for commercial financing, and selected Bank of Canton strictly on interest terms.   Commercial loans generally will finance up to 75% of the appraised value plus build-outs, so we needed cash for the remaining 25%.  We did a similar market analysis for a refinance of our home mortgage to provide some of that, and used Rockland Trust after a similar market analysis.

A lot of forces align today against minimizing debt: government encouraging highly leveraged home purchases, student financial aid that penalizes savings, taxes that penalize saving and investments, and of course banks and credit card servicers eager to charge as much interest as possible.  But our parents grew up during the Great Depression and taught us that debt is a tool to be handled with care, and thrift opens more doors than it closes.   This real estate transaction took all the resources we had, but our strong position allowed us the best terms for financing, the best legal and accounting advice, and ability to acquire and build out greatly improved work space with no impact on our cash flow.  Our parents were right.