Use Your Real Estate Wisely
by M. Will Fischtein
Rental income became a saving grace for Toronto business owners.
When business owners face tough financial times that challenge their core business and the bottom line, selling extra or vacant space in your business premises can create additional revenue to get you through.
Recently I was approached by a client whose art gallery was reeling from the economic fallout of recent years. The art market was in shambles. Fortunately for the gallery owners, they own the building located in Toronto’s exclusive Yorkville neighbourhood, which draws from multiple industry bases like restaurants, retail fashion, law firms, and money managers. There is no shortage of businesses that want in.
My client’s building is a lovely three-story Victorian era townhouse that was converted to commercial space. The main floor and lower level is their current showroom and the second floor hosts the gallery offices and a private client showing salon. The third floor has always been dedicated to inventory and storage. For more than 30 years the gallery business operated this way until the markets collapsed.
My Advice: Vacate the main floor and lower level and move the gallery operation upstairs; keeping the second floor offices and smaller salon-style showroom and using the third floor for admin, inventory and storage.
The gallery owners listed the main floor and basement for lease and found a great tenant in no time. They had to spend $100,000 on capital improvements to woo the deal but over the course of the five-year lease the gross income would be close to $500,000 and the investment would increase the book value of the building asset.
And, when they sold, the cost spent on capital improvements could be written off against any capital gains taxes.
My art-minded clients became commercial landlords to could keep their business alive. Although they’re working in a smaller space, they created a new rental income stream to pay their mortgage and hold onto their building
M. Will Fischtein, JD, MBA, is the President and Broker of Record of Beacon Corporation, Brokerage, a commercial real estate brokerage and a business intermediary specializing in commercial real estate combined with the sale of businesses in Toronto.