Smaller tenants looking to buy, rather than lease, space.

In three of every 10 phone calls I receive from small-to mid-sized tenants these days, the conversation turns to the notion of their buying, rather than leasing, office space in New Jersey. Tenants who occupy 10,000 to 30,000 SF are increasingly looking for opportunities to buy at least that much space and typically more, with the overage going for future expansion and current leasing opportunity.

These tenants - mostly professionals, such as doctors, attorneys, architects, engineers and the like - are interested in buying space for a variety of reasons.

* Even with a slight recent uptick in interest rates, money is historically cheap to borrow. That means a variety of things to these tenants who would be landlords. It means that the debt service on the loans that would finance such an acquisition is relatively low. The flip side of that equation is that it's pointless to keep investment dollars in cash, and bond yields aren't much more attractive.

* The equity markets, in this post-Enron haze, are perceived as scary places to, put investment capital. That, with meager yields in cash and debt, leaves investors with few satisfying investment alternatives.

* Although the office market in New Jersey remains sluggish, it is almost certain to turn around relatively soon. So the square footage that isn't needed now will almost certainly be occupied, if not immediately then in fairly short time.

The typical scenario is for the user to buy - or look to buy a professional building; preferably with high occupancy and a solid rent roll. The buyer occupies what he needs and seeks to lease the remainder.

There is a hitch, however. Prospective buyers outnumber sellers; there are more people looking to buy than there are properties available. (In one situation where I represented a seller, we fielded nine offers. That might be an extreme example; but it shows the imbalance nonetheless.)

The reluctance of owners to sell is understandable. They, too, would have to find a suitable place to invest their newfound capital, and many have taken advantage of low interest rates to refinance their properties. Another reason owners are hesitant to sell is that many have enjoyed significant gains on the value of their properties; the downside of that is that many face a sizeable capital gains tax liability. One possible solution is to structure the sale as an installment sale, in which the owner defers paying capital gains taxes by accepting monthly payments toward the purchase price, with only a portion of the payment being subject to capital gains.

With so many market variables saying it's a good time to buy -- and with an imbalance of prospective buyers and available properties -- it stands to reason that sellers can capitalize by getting hefty prices for their properties. Those with long-term investment time frames can consider blue-chip stocks or mutual funds that specialize in them.

Just as there are market-driven reasons to buy -- or sell at this time, personal, considerations also come into play. A smallish, expansion-minded business or professional practice seems the perfect candidate to buy property, so when it comes time to expand, space is not an issue. Owners who have seen appreciation in their properties and have fairly long time horizons for their investments might consider selling their assets and puffing the proceeds into blue chip stocks or mutual funds specializing in them. Owners who are nearing the end of their work days might consider cashing in at healthy prices today.

Would-be commercial landlords should keep in mind, too, that there are some headaches associated with property ownership -- rent collection, difficult tenants, vacancies and maintenance among them. If real estate is not their core business -- as in the case of most of my callers -- they might consider hiring an. asset manager to take care of the routine daily tasks that might otherwise distract them from their business or professional practice.

Property ownership is not an appropriate option for everybody. But in today's market, it is certainly worth considering. That's what a large percentage of my customers are telling me, and in many cases, I must concur.