One of the first questions that Joe Deegan asks new clients on the hunt for a commercial property is whether they want to buy or lease. ”My favorite answer is ‘Let’s look at both,’ because I think almost any business should look at all their options,” says Deegan, the managing director for SVN/Deegan-Collins Commercial Real Estate in Kingston.
In the American imagination, property ownership looms large. Whether it’s a center-hall Colonial or a Main Street brick-and-mortar, ownership has long been synonymous with success. For small business owners in the Hudson Valley, however, the decision to buy versus lease commercial space is rarely straightforward. It’s a complex calculation that combines a business’s financial standing, community context, and even a business owner’s personal temperament.
“Culturally, we live in a society that encourages real estate ownership,” says Deegan, who has seen multiple cycles of boom-and-bust in the market since getting into the business in the late 1980s. “But when you really peel things back and analyze your situation, leasing can be a very attractive option, and one that small businesses should really evaluate.”
The Financial Implications of Owning Versus Leasing
Commercial property ownership has many perks. There’s no landlord relationship to navigate, no unexpected rent hikes, and the specter of being asked to vacate at a moment’s notice is practically nonexistent. But control over a building comes with a whole slew of responsibilities.
“I always ask people, ”Are you in the real estate business or are you in your business?” says Deegan. “Because once you buy, you’re in both.”
Most commercial spaces, he says, require tens or hundreds of thousands of dollars in renovations to tailor them to the business’s needs. And when the pipes burst or the air conditioner goes kaput, you’re on the hook for it all.
For example, a business owner looking at buying a $1 million building could maybe get a loan for 75 percent of the value, Deegan says. They would then need $250,000 to $300,000 of their own money for the down payment. With, say, an additional $200,000 of renovations, that raises the total capital needed just to open the doors to almost half a million dollars.
“The good news is you own a piece of real estate. You control your own destiny,” Deegan says. “The bad news is, you know, in year seven, when that $100,000 air conditioner compressor quits, that’s on you.”
Leasing, he says, offers small business owners who are operating on thin margins vital financial liquidity and peace of mind. “Somebody’s paying the mortgage. Somebody’s plowing the snow, placing insurance on the building every year, paying a water and sewer bill,” he says. “You now have that off your shoulders. You can just make your product.”
The Ecstasy and Expense of Ownership
For some small business owners, the freedom that comes with property ownership still outweighs all the costs, and the responsibilities that go along with property management are just part of the entrepreneurial journey.
To Maria Philippis, owner of Ball and Claw in Port Ewen and former proprietor of the now-closed Boitson’s restaurant in Kingston, ownership has always been the only option worth pursuing. ”As soon as I was able to, I never rented again,” Philippis says, recounting an early bad experience with a landlord.
Philippis has fueled a series of commercial building transformations, from turning a tanning salon into a bustling Uptown Kingston restaurant to renovating a Port Ewen doctor’s office into an antique emporium. “That’s the entrepreneurial spirit of seeing potential in things,” she says. “People thought I was a little crazy, but that’s part of being a business owner.”
Philippis acknowledges, however, owning her own building required sacrifices early on. “I downsized, and I lived in a small apartment above the restaurant,” she says. “I did whatever I had to do to keep the business floating until I built it to the point where I didn’t have to do it anymore.”
Still, she cautions others to approach ownership with realism. “Think of the worst-case scenarios. What if you’re not busy? What if you get sick? What if the market crashes? Just because you love your product doesn’t mean it’s going to be successful. Owning is not for the faint of heart.”
Leveraging Leasing as a Strength for a Growing Business
For many small businesses, particularly those operating in Hudson Valley towns where real estate prices have soared in recent years, the many upsides of leasing are hard to ignore.
“When you lease, you’ve given yourself the freedom of growing or retracting, and you don’t have to shed a real estate asset,” Deegan says, noting that the sale of commercial real estate property can take six months to a year or more.
The owners of Made x Hudson, a small-batch garment factory and slow fashion boutique with locations in Hudson and Catskill, have chosen to continue leasing even as the business has significantly grown since its founding in 2020.
“We’re still a startup, and we definitely would love to own our space at some point because you see a lot of creative businesses eventually getting priced out of the market that they’re helping create,” says co-owner Eric De Feo. “We’re a creative business though, and a low-margin one, so it’s not like we have a lot of extra capital laying around to invest in a property.”
Last month, the team signed its fourth lease to expand into a neighboring space and double its factory size in Catskill. “We went back and forth on this decision for probably a month,” De Feo says. “Right now, we still want to grow more regionally. Renting keeps our options open, and every time we expand we get more clients.”
For Rural Areas, Ownership May Be the Best Option
Farther afield of bustling Hudson Valley river towns, lack of leasing options sometimes leave small business owners with few choices outside of ownership. For Sara Sharpe, co-owner of furniture showroom Estro in Andes, leasing a space was originally the goal. “People told us, ‘Good luck, nothing comes up for rent here.’” But Sharpe and her husband were smitten with Andes, and were determined to find a commercial space in their rural Delaware County town.
After a few months of talking to other small business owners in the community, an opportunity arose that made commercial property ownership the option that would help them realize their dream and feasible for their finances.
They discovered that the Catskill Watershed Corporation in Arkville offers small business loans as part of its mission to support economic development in the watershed region. “They helped us buy the building with around a four percent loan,” she says. “I don’t think we would have done it otherwise. Commercial loans are usually 13 percent or higher with huge down payments.”
The building they purchased is large enough to host multiple tenants: a grocery store, a woodworking studio, an architecture office, and a residential apartment, in addition to Estro’s furniture showroom.
For Sharpe, being a landlord, while challenging, offers them the chance to invest in their community in a way they wouldn’t have if they had just leased. “There’s a long-term community engagement aspect that maybe a lot of people don’t really think about with ownership, particularly in a tiny town,” Sharpe says. “If we want our building to be successful and for our tenant businesses to survive here, we have to be invested in our community—talking to other small business owners, supporting them, and getting excited for what they’re doing too.”
Making the Decision
While a small business’s ledger may benefit more from leasing, ultimately, the choice is a highly personal one. In the Hudson Valley and Catskills, where markets range from high-demand river towns to quieter rural hamlets, there are many successful paths to opening a brick-and-mortar space.
“You have to get unemotional about it, and find what is best for your business,” says Deegan.
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