The story of an accidental real estate mogul.

Jake owns a small, successful graphic design firm with 12 employees. Three years ago, after a decade of frustration with rent hikes and forced moves, he spent $2 million to purchase a building for his business.

The building is conveniently located (Jake can even walk to the office) and provides an attractive, comfortable space for his employees and clients.

It also includes several storefront spaces that generate steady rental income.

Everyone is happy in their new home, but a phone call Jake received a few weeks ago put a damper on their domestic bliss. The caller was a real estate agent whose client was prepared to offer Jake $4 million for the building.

A Nice Problem to Have

Jake never intended to get into the real estate business, but suddenly he's found himself sitting on a gold mine. The building that he owns is actually worth more than the business itself. But to mine those riches he'll have to relocate to a cheaper--and probably less desirable--locale. This presents Jake with a dilemma: Does he stay put and eventually pass this valuable asset on to the next generation? Or does he cash in and move, disrupting the very stability he was seeking in the first place?

Many people would view Jake's predicament as "a nice problem to have," but it does raise some difficult issues. Jake can probably think of dozens of uses for his unexpected windfall--from funding his kids' college education to buying a vacation home. But if he moves to a less convenient location, he may lose employees and clients, which would hurt the business.

There are also "quality of life" issues to consider. Jake enjoys working close to home and the neighborhood boasts a variety of interesting restaurants, cafes, and shops.

If he moves the business, he'll face a commute.

At the same time, Jake worries about the proverbial "real estate bubble." If he sits tight and the bubble bursts, will he lose the opportunity to cash out?

A Developing Trend

Jake isn't alone. An increasing number of business owners in New York and other cities across the country are discovering that the buildings that house their enterprises are now worth more than the business itself. A number of factors are contributing to this trend, including skyrocketing real estate values, rezoning, and the continuing condo craze.

In addition to lifestyle choices, the situation presents other options to the real estate owner.

He/she can choose to sell the building, and then lease it back from the new owner. The original business owner gets to "cash out" from the sale of the property without necessarily facing the relocation of the business.

Another option is for the business owner to consider refinancing his loan on the property. If interest rates are lower than when he originally purchased the building, he once again has the opportunity to "cash out" from his real estate investment without facing relocation.

If you find yourself in this situation, talk to your business and tax advisors about evaluating the pros and cons of selling your building. In addition to the short-term benefits and costs, you should also consider the long-term impact on your business, succession, and estate planning strategies.

When faced with the decision to move or stay put, there's no right answer. It depends on the business and personal goals of the owner or owners. Some might regard the decision as a "no brainer," but it's important to recognize that there are meaningful factors to consider on both sides of the equation.

By Marc Wieder, CPA, Partner

Anchin, Block & Anchin LLP