Publication Date: Wednesday, March 30, 2005
Calm in the real-estate storm
Calm in the real-estate storm
(March 30, 2005) Owners of commercial condos sitting pretty while market swirls
by Jocelyn Dong
W henever Stephanie Grossman hears news of skyrocketing office rents in Palo Alto, the court reporter and small-business owner just smiles. She can afford to; she owns her own office space with business partner Paula Cotter.
Grossman isn't a big-time Palo Alto property owner. She's just one of a lucky few who owns a commercial condominium. Besides Palo Alto Central, where Grossman and Cotter own property, there is just one other business-condo building in south Palo Alto. Just like a residential condo, it's space within a larger building that has been sold to an individual business.
Tonight, property owners CBC Bay View Partners of Menlo Park are scheduled to ask the Palo Alto Planning and Transportation Commission for approval of a map that would pave the way for a 67,400-square-foot, 10-condo development at the end of San Antonio Road.
The 5,000- to 8,800-square-foot condos would be created from existing single-story buildings -- in effect changing the property from rentals to individually owned spaces.
The advent of commercial condos extends back at least two decades, but the market has gotten a boost lately in the Bay Area, in part due to companies such as Venture Corp. and Capital Partners, which have developed projects in cities including San Jose, Morgan Hill, Hercules and Fremont.
Local developers have also gotten into the act. Partners Chop Keenan and John Lovewell completed 50 condos in San Rafael last July, each unit about 1,700 to 4,500 square feet. Businesses snapping up the properties ran the gamut of entrepreneurs.
"We got a company that does furniture vignettes in homes. We've got a guy with an auto collection, one or two lawyers, a painting contractor -- you name it," Keenan said. "It's so fascinating when you really see the mass and variety of entrepreneurs."
The appeal of being one's own landlord may seem obvious; just as with residences, people also enjoy the benefit of owning an investment, Keenan said.
"So 15 to 20 years later, when you're ready to retire, there's something to feed you -- i.e., the building. It harks back to an earlier day," Keenan said.
Dividing up large spaces makes sense, especially in a market where large office buildings are sitting empty for years due to lack of buyer interest.
So why aren't more popping up?
"They're shockingly expensive to build," Keenan said.
Then too, the market for business condos is relatively young and the question remains to be answered as to just how much demand is actually out there.
"Like any good crop in California, it can get over-cropped. We're being careful on where we do these things. No one knows what the ratio is, ... what's the depth of the market," said Keenan, who is also working on some commercial condos in Mountain View.
Donald Douglas, of Douglas & Moore Real Estate, Inc., is one who has faith that the market will grow. With the decline of dot-com stocks, investors are eyeing commercial real estate -- especially the more affordable small-scale developments such as strip malls and condos, he said.
He recently sold one of the 18 commercial spaces at Palo Alto Central, about 1,600 square feet, for about $1 million. The condos in both Palo Alto and Menlo Park seem to be popular with dentists.
The biggest challenge to small-business owners may not be raising enough capital to buy -- there are small-business loans available -- but other investors. Though some of the Palo Alto Central condos are owner-operated businesses, a number are owned by landlords who rent the space out.
Grossman was lucky enough to buy into Palo Alto Central 20 years ago. About five years back, she dipped her toe into the rental market, leasing a nearby office in addition, to expand the business. Then last year, two adjacent 1,400-square-foot offices in Palo Alto Central came open, and Grossman and Cotter gave up their original 1,400-square-foot space in favor of those two.
Over time, Grossman said she's enjoyed the security of ownership -- especially when she hears about a friend's umpteenth relocation of her business.
"I felt it especially during the dot-com days -- that we weren't going to be rented out," Grossman said. In the end, she added: "I just like knowing that this is ours."
Senior Staff Writer Jocelyn Dong can be reached at jdong@paweekly.com.
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