$2.78 - Really!!

3 Reasons Why Owner/Users need to forget about PSF & focus on business property value!

It was only $2.78 that's all - $55,600 on a $2,540,000 transaction to be exact or $125.00 vs $127.78 per square foot difference between my buyer and the seller of an industrial property.

An off market property that was so perfect for my client they could not believe I was able to find one matching almost all of their requirements.  (BTW - they did not know what their requirements were to begin with but read on)

Seller was ready to retire, had a bit of a distressed business situation and just wanted out.   Seller made several concessions on price, they began at $135psf and had moved to the $127.78 - buyer was stuck @ $125psf, would not move.  Deal did not happen it imploded.

I see this type of short sided focus on PSF by owner/user buyers often. Their focus is on the extra $2.78psf the $55k delta.  What they should be calculating is what not getting the property costs them.

In this particular situation if the buyer had just done a quick calculation related to their existing occupancy/production costs/losses they would have understood that $2.78 was a drop in the bucket compared to what their current occupancy was costing their business.

• They were spending $180,000 over the last 5 years paying an employee 4+ hours each day to move raw & finished goods outside and then move them back in at the end of the day.
• This $180k does not include the damage or loss to raw and finished product that was done daily - I witnessed it myself and my guess it was equal to the labor costs if not more.  BTW - this did not include the lost profit of the finished product that was destroyed and thrown away.
• Total costs $360k but wait there's more...
• They were in 15,ooosf and by conservative calculations utilizing 70% of the space, but paying for 100%.  The net cost to them for this inefficient use annually was $40k - they had this amount of space for 5+ years.
• We are up to $590k ($360k + $200k) in wasted inefficient use of dollars in labor and rent.

If you are an owner/user, someone who will be purchasing a building for your business operations, here 3 Reason to get your mind off of PSF.

1. Start backwards - don't look for buildings first - analyze what your business needs and what it can save or produce with the right building.  Fortune 1000 companies do an in depth analysis of what their real estate requirements are and what the building can do for them in performance improvements/product quality/profit/production efficiency etc.  This can be a larger or smaller space, taller clear height, better flow for raw material and finished goods (eliminating double or more handling) better truck access, and of course better location (reduce cartage/drive time).  There is no reason why your company cannot do a similar analysis.
2. Not an Investment for the Business Owner - This is not an investment for the owner of the business, it is an investment for the business.  If you have completed the analysis of why and what the new building will do for the business then the answer about what you can and should be purchasing and for how much will be answered.  Too many times owners want to turn the purchase into an investment scenario and that will force them to focus of PSF values and not what profitable to the business.
3. Don't hesitate, know your numbers - if the analysis that you complete suggest that you can pay at or possibly over market for the right property and the improvements to and for the business make sense then pull the trigger and purchase the building.  In today's rising price market and low interest rates combined with your analysis the deal should be very simple to confirm and then make it happen.

Good Business....Good Real Estate

Cameron