Like us humans, nothing is static … not even a solid building that appeared it would last forever.
As a property owner approaches retirement, many issues should be considered as to what to do with his improved piece of commercial real estate. If you are at that point in your life, have you got it all figured out?
I am often called upon to assist people in assessing the options that lay ahead as they face the next stage of their lives.
Sometimes such a change is part of a well thought out plan, while others come about due to unforeseen circumstances.
Take for instance the case of a wonderful individual I had the pleasure of working with not too long ago. He dutifully ran a second generation family business on a substantial piece of commercial real estate he inherited nearly 50 years ago.
In its heyday, the business with a strong following of loyal customers was the envy of many nearby retailers.
As the years passed and times changed, the business could live on its reputation only so long without finding that the new and creative competition that entered the market eroded his sales.
Maybe it was his sense of loyalty to the old family tradition of the way things had always been done, or maybe it was an unwillingness to try new things.
Whatever it was, my client slowly came to realize that while he was real estate rich, he was becoming cash poor.
At the point I was called upon for some advice, I found a property that looked tired. The business had suffered such that my new client had deferred the maintenance of his commercial real estate so much that many would be customers chose to drive by instead of stop in for a look.
Of course the appearance of the property now only added to the decline in the business, which had shifted to operating in the red.
Sometimes when one can be so close to a situation that the obvious is not apparent … and that can go on for decades.
In my client’s case, while he grew very attached to the legacy that he wanted to continue for as long as he was physically able, he was now really feeling it in his bank account.
His primary asset was fatigued yet unencumbered real estate. None of his children were interested in carrying on a loosing enterprise.
Several options were considered:
1. Refinance the property and reinvest in giving the property a face-lift in hopes it will bring business back to those heyday years.
2. Sell the assets of the business and lease the property to an energetic entrepreneur.
3. Sell the real estate and lease the commercial real estate back from the new owner, who will commit to invest in making major improvements … the face-lift that is needed.
4. Sell the entire package of real estate and business and reinvest the proceeds into another investment that generates passive income … stocks, bonds, mutual funds, investment real estate or any combination thereof.
As we walked down the path of each scenario with my client’s financial adviser and attorney, it was determined that a refinance was too much of a risk at his age.
Option two offered my client the ability to step away from the business while continuing to own the real estate; however the question arose as to how to deal with the tremendous amount of deferred maintenance. While MacRo could find a tenant who was willing to pay rent that would provide my client with a reasonable income to live on, did my client really want to be a landlord? Answer: No!
Option three was not appealing, as it meant my elderly client had to find the energy to start fresh in a property he no longer owned … not easy when the property has been in the family for nearly 100 years.
As hard as it was for my client to make the decision, he knew that if he just stayed with the status-quo and made no decision, the suffering business and the depreciating real estate would only eat away at his retirement nest egg.
In this particular case the second generation retailer came to the conclusion that the risks outweighed the possible rewards in choosing any path other than selling the business assets and the commercial real estate that housed it.
Within a period of just eight months an enthusiastic young business minded couple found the opportunity just too hard to pass up.
Today the old commercial building has been restored and given an exciting new look, and with the original business name incorporated into a new retail enterprise, my client could not be more proud that his family name lives on in a thriving new Frederick County, Maryland business … and he is living comfortably on a very low risk investment portfolio and enjoying a life with freedom to travel and enjoy his grandchildren.
Have you thought about your options as you approach a time of change in your life? Maybe the team at MacRo can help.
Please contact us for a confidential meeting.
The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He has been active in the Frederick, Maryland community for over four decades, having served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012 to name a few. Many of his articles also appear in TheTentacle.com