According to CIBC World Markets (November 2012) $3.7 trillion of business assets will change hands over the next 10 years (by 2022). That represents $370 billion per year. Those assets belong to small and medium (sales of $30,000 to $50,000,000 per year) business entrepreneurs (550,000 in Canada).
Assuming 1% of those assets represent commercial real estate and the value of that commercial real estate is pegged at $150 per square foot, you will have an estimated 25,000,000 square feet of space coming on the market every year. Ontario represents 39% of the population of Canada so there could be 9,750,000 square feet of excess space coming on the market every year for the next 7 years.
On an annual basis you will be competing against 21,450 other business owners trying to sell close to ten million square feet of space in Ontario alone. That does not include landlords who will be trying to lease millions of square feet of vacant space at the same time.
Granted many small businesses are run from their homes and that is why we have only used 1% of the Boomer assets as real estate. It could be considerably more.
The important issue is if you own real estate and you want to use the value of the asset for your retirement you will have to give serious consideration to realizing the gain from that asset sooner rather than later. Your options include selling your business to another individual or company and have the buyer lease the space. Complete a sale leaseback of the space until you sell the business. Sell the asset and fold the business. At least you control the process. The other alternative if you wait too long may be a bankrupt business with the real estate going with it. Not a very pleasant thought.
For the same reason you should be well on your way to have a succession plan in place for your business you should also have one for your real estate. Having an idea of the value of your real estate and what options you have will allow you and your accountant to better plan your future. There are numerous ways of obtaining the value. Order a full appraisal (most expensive). Have a Letter of Opinion completed by a trustworthy source, i.e. Colliers. Talk to your peers and see what they are doing. Investigate property sales in your neighbourhood.
Whatever method you chose do not get caught up in what the neighbour got for his property. You MUST consider environmental factors, age, general condition (roof, asphalt), and functional utility (ceiling height, loading doors, power, office space, floor levels, open or chopped up, general location, and ingress/egress).
With building values anywhere from $25 per square foot to $75 per square foot for industrial and $75 per square foot to $150 per square foot for office or retail there can be wide swings in the ‘Market Value’ – what someone will be willing to pay and the timing of the sale or lease.
Considering the real estate can represent up to 75% of the value of the business assets, it is very important to know what you have. Do not get caught in a last minute squeeze that could have a detrimental effect on the value you have built into your business over many years.