Purchasing with an SBA Loan: How to Lower Your Rent and Create an Investment

Dramatically cut your company or professional firm’s “effective” lease rates. An SBA 504 loan could be the answer to saving a significant amount of money compared to the high costs of leasing.

If a creditworthy tenant can find a viable building or commercial condo space to purchase, then buying with an SBA 504 loan could mean reduced costs and increased income potential.

A couple of important points to note:

  • The upper limit for most buyers on an SBA 504 loan is $5,000,000, except for manufacturing companies, for which it is $5,500,000.
  • The new Financial Accounting Standards Board (“FASB”) rules for lease accounting will force tenants that use Generally Accepted Accounting Principles (“GAAP”) to show the entire value of their multi-year leases, plus all renewal option periods, on their balance sheets. This means it may make sense for smaller to mid-sized, privately held companies and professional firms to seriously consider buying or constructing their own buildings.

If your firm has fairly stable space needs, owning your own building and paying rent to yourself can make a lot more sense than continuing to lease.

Not to mention that owners can also take advantage of tax depreciation and, hopefully, gain appreciation of the property value on their investments.

Case Study for Buying with SBA 504 Loan

A client received a national landlord’s offer to renew its lease for five (5) years at $11.04/SF triple net (“NNN”) per year. While the representing brokerage initially objected to the landlord’s proposal, their research and multiple forays into the market ended up validating it as a fair market lease renewal deal in their area.

They didn’t accept the landlord’s proposal or tight market options without a fight. They persevered, broadened search parameters, toured more buildings for lease, and eventually found an excellent opportunity for the client to purchase. The client’s commercial banker supported the decision by offering an SBA 504 loan.

Buying effectively lowered the client’s annual rental rate by 37.4% to $6.91/SF NNN, versus renewing for five (5) years at $11.04/SF NNN.


The Client was very wise and avoided the #1 mistake that most commercial occupiers make: starting their evaluation and search process too late. In this case, this client started the lease renewal process eleven (11) months before its lease expired, not thinking at all that it would end up buying a building. Starting early enough enabled time to explore all of the lease options available and evaluate the “what if” scenarios of buying.


Here are some important details to know about many lenders’ SBA 504 loan programs:

  • Down Payment: 10% down payment. Tenant improvement (“TI”) costs and upfront expenses incurred by the Buyer, up to 10% of the Purchase Price, can count towards the down payment.
  • Interest Rate: Low, fixed interest rate (blended rates from the lender and SBA).
  • Loan Term: Five (5), seven (7) and ten (10) year loan terms are available, fifteen (15) years in some instances.
  • Amortization Period: Most SBA lenders allow a 25-year amortization period for the buyer’s monthly payments of principal and interest. (These monthly payments, in effect, are the NNN rent.)
  • Origination Fees: Some SBA lenders do not charge origination fees. Some banks will pay a 0.5% “Participation Fee” when an SBA 504 loan closes.
  • Personal Guarantee: No personal guarantees are required. This is a huge benefit to a well-qualified buyer with good credit.
  • Occupancy Requirement: Buyer must occupy at least 51% of the floor area of the subject building or condo space, as per SBA 504 loan program requirements.



If your privately held company or professional firm has good credit and is experiencing sticker shock over today’s rental rates, then buying a building or condo space with an SBA 504 loan might be the perfect way to beat your landlords’ high rates.
Other major benefits of buying space include depreciation for tax purposes and, potentially, appreciation in the value of the property. Even if your company or professional firm comes to an end in the future, there may be the opportunity to lease the building or condo space to someone else and turn the investment into a valuable vehicle for retirement. An SBA 504 loan can make buying an ideal alternative to paying high lease (renewal) rates.



Any questions? Contact Ryan at  [email protected] or  (713) 840-8528.

Ryan J. Hartsell , SIOR, MRE, Principal, and Managing Partner of Oxford Partners LLC, focuses on reducing the cost and risk associated with leasing and purchasing office and industrial property. He is recognized by his clients for his attentiveness, market knowledge, and negotiation prowess. He holds a master’s degree in commercial real estate and a bachelor’s degree in finance. As a third generation Houstonian and Principal of Oxford Partners, he has a unique appreciation for the business owners’ challenges by way of his own personal experience, which translates into better representation and empathy for his clients.  


Note: Portions reprinted with permission of William Gary, MBA, MIM,  based on Canonical Reference to MacLaurin Williams Worldwide’s blog article How to win with SBA Loan and rent from yourself, posted at:



Houston Office Market Report: Mid-Year 2018

Houston Office Market Report: Mid-Year 2018
Economic Indicators are Strong and Oil Market Continues Upward Trend.
Houston Office Market Update

As the 2017 calendar year came to a close, I noted the first glimpses of optimism within the Houston business community in a long time. The oil market was beginning to stabilize, and OPEC had recently announced an extension of its output restrictions through the end of 2018. Now, with half of 2018 in the rear-view mirror, we can safely agree on the fact that Houston’s office market has reached bottom. Growth is expected to occur slowly, and most in the commercial real estate industry admit that it may take 18+ months to backfill all the occupancy losses. Sublease space has continued to saturate the office market, especially in Q1 2018. In the 2nd quarter the available sublease space decreased by 700k sf and could mark a turning point. Tenant concessions are still quite strong across the leasing market, and it’s anticipated to remain a tenant-favorable environment through 2019.

The Strength of Oil & Gas

Today oil is trading consistently in the $65-70 per barrel price range, which is considered a comfortable price point for most in the industry. U.S. crude production has set new records on several occasions this year, most recently just a week ago reaching 11 million bpd. The U.S. rig count has consistently risen through H1 2018, and finally eclipsed the 1,000 mark for the first time since April 2015. There is certainly a feeling in the city that the oil market is back, and with it, the Houston economy. Of course this stabilizing market does not guarantee an immediate influx of hiring and job growth. Energy firms are beginning to hire, yet it is clear that new positions will be posted and filled cautiously on an as-needed basis. The trend prior to the most recent oil downturn was for energy firms to sign “large and long” lease agreements, and their hiring tended to follow suit. This time around we are noting a more measured approach to both hiring and leasing decisions.

Houston Office Market Report - By The Numbers

In the second quarter of 2018 the vacancy rate in the Houston office market decreased mildly from 16.7% to 16.5%. This equated to a net increase in occupancy of 202,720 sf for the quarter. With a total office market exceeding 325 million square feet, this rate yields upwards of 53-55 million square feet of vacant space citywide. When considering available space which is still occupied, but will soon be vacant, the rate exceeds 20%, or 65 million square feet. Despite a weak first quarter for Houston’s office market I do believe the bottom has been reached. Leasing activity seems to be trending upward, and there are a number of new start-ups and firms securing equity funding rounds at this time. Time will tell if this upward trend can continue, and if we will see any substantive reductions in the sublease market for H2 2018.

Rental rates decreased slightly in the 2nd quarter but are practically flat for the year. Across all building classes in Houston the average asking rental rate was $27.60 per square foot. Building owners have continued the strategy of providing more generous concession packages in the form of rental abatement, tenant improvement allowances, free parking, and other inducements as a means of avoiding rental rate reductions. We expect this to continue through the remainder of 2018.

The Houston office market now consists of over 326 million square feet of space and totals more than 9,000 properties. Class A buildings account for a staggering 45% of the total office market. Another 42% of the market is considered Class B, with the remaining 13% falling into Class C.

Houston Construction Activity

Commercial office construction activity remains light at this time, with only 2.6 million square feet in the works. Seven properties remain under construction in The Woodlands, accounting for 35% of the UC inventory in Houston. Overall, this construction space is 52% pre-leased at this time. Over half the properties currently underway will not deliver to the market until 2019. The construction activity for 2017 lagged behind the historical average of ~ 5 million square feet and 2018 will fall short of this number as well. As the market fundamentals begin to re-balance we expect to see an uptick in construction starts. The recent announcement by Hines that they will develop a new 47-story building on the former site of the Houston Chronicle is the first sign of this.

Best and Worst Performers

In the first half of 2018 three submarkets stood out for improved performance: Galleria/Uptown, The Woodlands, and the Katy/Grand Parkway area. Together these three submarkets accounted for over 700k sf of positive absorption. Overall, the South Main/Medical Center remains the strongest office submarket with a 4.1% vacancy rate, under-scoring the healthy performance of Houston’s medical industries. The Woodlands remains the strongest of the large markets at 9.1% vacant – well below the average. Sugar Land is a close second at 9.8% vacancy, and the FM1960/249 area is doing well at 10.4%, reflecting the fact that many Class B and C properties are managing to remain well-occupied.

On the other end of the spectrum we have Greenspoint/N Beltway, Houston CBD, the West Beltway, and Westchase submarkets rounding out the worst performers. Together these four submarkets accounted for over 1.3 million square feet of vacancy increases. Another 1 million square feet of vacancy was lost across 19 other submarkets in Q2 2018. Greenspoint/N Beltway is now 47% vacant, followed by Post Oak Park at 27%.


IAs you’ve read in this Houston Office Market Report, the local economy has been improving of late, due in large part to the oil & gas market rebounding. There are some economic headwinds on the horizon globally and nationally for the United States which could affect demand for the oil & gas market. Most predictions are considering a 24-36 month time period for that slowdown to materialize. The flattening yield curve, tumultuous stock market, rising interest rates, and the threat of inflation are certainly on investors minds. Here in Houston locally, there is renewed optimism about the coming recovery for our economy. With that recovery will come stabilization of the office market, though we expect this to be a long, drawn out climb back to reasonable occupancy levels.

Click here to view the full Oxford Partners Q2 2018 report.