Rent or buy? Featured

10:59am EDT March 28, 2003
Ken Rowles, a shareholder with accounting firm Schneider Downs & Co., jokes that he stepped out of a meeting for a moment and came back to discover that he had been handed the responsibility of overseeing the acquisition and renovation of the firm's new headquarters building.

That was almost 20 years ago, and Rowles still has his hands on the task of managing the renovation needs of the firm's headquarters. He insists that he enjoys the task, even though it amounts to a part-time job in addition to his shareholder and client responsibilities, but his anecdote highlights the difference between renting space in a building and owning a building lock, stock and barrel.

For a lot of businesses, there's not much choice. Real estate is an expensive capital investment, and for growing businesses, cash is sometimes in short supply and often better used for other purposes.

For Downtown accounting firm Schneider Downs, however, owning its headquarters building at 1133 Penn Ave. -- a choice the firm made in 1984 -- has made sense for a number of reasons, both logistical and financial.

"We're a believer in a Downtown base," says Ray Buehler, the firm's president.

Buehler says locating Downtown was critical because many of the firm's employees relied on public transportation to get to work when Schneider Downs moved from the Investment Building to its current location, which straddles Downtown and the Strip District a stone's throw from the expanding David L. Lawrence Convention Center.

Besides, there's a cachet to having a shingle hanging on a Downtown building that is hard to match at a suburban location, particularly for a professional services firm.

Buehler says Schneider Downs, which had about 80 employees at the time, envisioned substantial expansion and wanted enough flexibility to accommodate growth. When it acquired its building, it took about 8,000 square feet for its operations. There were two other partners in the building, and ultimately, the accounting firm bought out their interests.

When the current fifth floor renovation is complete, Schneider Downs, now with about 200 employees, will occupy the entire structure.

The financial side

For Buehler and Rowles, ownership means keeping a major portion of the firm's monthly expenses fixed. Since 1984, Schneider Downs hasn't had to absorb rent increases it would otherwise have encountered.

Meanwhile, the value of the building has increased substantially because of nearby development.

"When we moved up here, clearly it was on the edge of town," says Buehler.

About that time, the Vista International Hotel, now the Westin Convention Center Hotel, was built. The David L. Lawrence Convention Center is undergoing a major expansion, the Strip District has added a headquarters building for Seagate Technologies and the Heinz History Center, not to mention other businesses and entertainment venues, have opened nearby.

Schneider Downs has also benefited from an historical preservation tax credit. The firm bought the building for $600,000 and has been able to take a 20 percent tax credit, or $500,000, on $2.5 million in improvements.

As a professional corporation where the partners hold ownership, each partner's interest is purchased by the partnership when he or she leaves the firm, and as new partners are added, they acquire equity in the building.

Burdens of ownership

But owning a building is, after all, owning a building, and that means that there's no landlord to turn to when the heating system fails, the plumbing breaks down or the basement floods.

And owning an old building -- the former Byrnes & Kiefer Co. warehouse where Schneider Downs now resides was built in the late 19th century -- poses challenges when it comes to updating space for new heating, ventilation and air conditioning systems and information technology networks. Accommodating expansion requires careful planning to reconfigure floor plates and offices when you own the building. And retaining architectural elements like exposed brick archways and arched windows can be a task.

"It's a little more challenging with the exposed timbers, the high ceilings," says Steven Massaro, vice president of the Massaro Co., the construction contractor that has done all of the work in the building since 1989. "Standard office buildings with steel frames built in the '60s, '70s and '80s are a little easier to move around in."

Each project requires considerable construction management prowess to complete the work with minimal disruption for the work force. Most of the building's six, 7,000-square-foot floors have been remodeled since Schneider Downs moved in, and some of the first refurbished are now in need of a second facelift.

The fifth floor, vacated last fall by the Bernstein Law Firm, which moved into the Gulf Tower, is currently undergoing a complete overhaul, and there are plans to redo the first floor lobby to convert it to a reception area.

Schneider Downs has smoothed the renovation process in several ways.

Internally, it has put the projects in the hands of Rowles and office manager Mary Kay Harvey. Rowles interfaces with Schneider Downs' other 18 shareholders, and Harvey keeps the process on track by working closely with Massaro Co. and communicating with employees to keep them apprised of the projects as they progress, letting them know when work crews will be in their areas and what they might expect.

Working with the same contractor, says Rowles, eliminates much of the groundwork that would have to be done if Schneider Downs put each project out to bid. Massaro already knows the building, so it doesn't have to reinvent the wheel each time it does a job.

And Massaro uses many of the same subcontractors, in addition to its own employees, on projects at Schneider Downs. It can select the right architect to fit the job at hand. And with its knowledge of the building, the architect requires less of an on-site presence and, as a result, reduces construction management costs for each project.

Massaro says having someone like Harvey at the client end takes the wrinkles out of the process.

"Not everybody views it as fun," says Massaro. "They view it as dirty; they view it as a necessary evil."

Harvey says she enjoys the process, although she acknowledges that it is a lot of extra work on top of her regular duties.

"It can make you crazy sometimes," says Harvey.

Ultimately, Rowles and Buehler agree, owning beats renting not only because of the tax advantages, but because it offers the firm more freedom in designing space for its needs than it would have if it were merely a tenant. Key to making it work, says Rowles, is having a good working arrangement with a contractor, like Massaro, that sees a value in long-term relationships with its clients.

"It's the same as our business, building relationships," says Rowles.

"That's what makes it all work." How to reach: Schneider Downs & Co. Inc., www.sdcpa.com; Massaro Co., www.massarocompany.com