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Renovate or Build: How To Decide
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Business New Haven
11/10/2003
By: Melissa Nicefaro
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Cheap money may be on its way out of circulation as the federal government considers raising interest rates.
There may be no better time than now to seriously consider where your business is going - figuratively and physically. Whether it's time to renovate or build from scratch, there is no general rule of thumb for making a decision which way to go.
There are two paramount considerations: money and time. As with any major purchase or investment, cost-effectiveness can be the deciding factor whether to build new or renovate. Also, as with any industrial or commercial construction, there is a long litany of considerations.
The first factor to consider is feasibility. What do you have now? Is it outdated? Borderline? Does it meet your needs? If the facility you have is antiquated, new construction may be ideal.
There is ample land in much of southern Connecticut available for building, but it may not be in ideal locations for many businesses. There may appear to be a smaller amount of property on the market, but just because there is no For Sale sign doesn't mean the property is not available. It never hurts to ask!
Next, look at the position of your company's financial strength. Is it owned by a conglomerate or is it a mom-and-pop operation? The amount of money you have available will dictate your boundaries as far as construction. Renovation can be financially costly, but the payback can be spread over time versus a new construction that can carry an up-front financial hit.
Interest rates, though likely on their way back up, are still very low and attractive enough that it's attractive to borrow money. Consider if financing is available or if your business is cash-strapped.
It is possible to spend more money renovating and bringing a building up to code as opposed to building from scratch. Renovating may be cost-prohibitive, but if you have a piece of property that would likely fetch an attractive price, you could move, start fresh and have everything you want.
By looking at five- or ten-year plan and considering where she or he wants to be at the end of that time, a business owner can visualize whether a new construction or renovation is more appropriate.
With interest rates still at historic lows, many business owners are buying property now but not taking any further action for a couple of years, in hopes that the business is going to grow. Within ten years, the land can be paid for and when the time is right, they can move their business in.
Just like looking at your home investment and value, with a business, consider whether sinking money into the structure the business occupies is worthwhile. Is it in the right area geographically? If you put $20,000 into it, would you get the money back when you sell? Or is it better to build new and get exactly what you want, exactly where you want it? The general philosophy is the same in commercial building as in residential building.
Consideration of tax dollars and demographics of a local area can also play a factor in your new-versus-old calculus.
Time can also be an issue when deciding whether to build or renovate. It can take between six months and two years between deciding where a business owner wants to go and moving into brand new space.
A knowledgeable contractor can be an asset, especially if involved early on in the process. A contractor would ask exactly how your business functions physically, what you need, where you see your business in the future and whether growth is a possibility. If there are particular uses required - for example, a high-hazard as opposed to a manufacturing facility - a contractor can help you chart a path and go from there.
If you decide on new construction, a trip to the local planning and zoning office is required. Approvals and permitting processes can take between six months and two years in most local municipalities. There is without a doubt a lot of legwork to be done with new construction, and as with most legwork, there are associated costs for attorneys, designers and engineers.
For example, if you have an existing building and want to add 10,000 square feet, but you're within wetlands guidelines, you'll need to go before the wetlands commission, another step that might stretch the process out. If you're looking in a high-hazard area and the next building is ten feet away, you'll need to put up a firewall if one does not already exist.
Different from a real estate agent whose sole job is to procure land or property for a client, a commercial contractor can help a business owner through the permitting process with all the local municipal boards and commissions, handle building design and then, of course, the building process itself.
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