The 2nd Annual Sacramento Strip Mall Conference was held this week. The conference was full of ways for retail property owners to make money. As your retail real estate expert, I will share a few of them.
1. Charge for your monument signage. Make the fee agreement an addendum to the lease. This gives you additional revenue, which increases the value of your real estate. It gives the tenant a way to advertise their business to every car and person that passes the site.
2. Monitor your tenants sales volume monthly. If you begin to see a trend emerge, as the property owner, you can step in to assist rather than wait until the tenant goes out of business. This right should be included in your lease.
3. Use your strip mall for fundraisers. This is a wonderful addition to the community. Since the residents are the ones who frequent your centers, give something back.
4. Charge for an exclusive from a small user. In some areas, there are many vacancies. If the tenant is desirable and brings value to the center, you may opt to give them an exclusive when they pay a higher lease rate.
5. Green construction will soon be mandatory. As you make improvements to your center, consider green construction. You will be ahead of the curve and bring value to your center.
6. Right now, there is a battle called mega grocery, cheap price vs. high experience, high price. As a result, some of the largest grocery chains find themselves in the dreaded “middle”. To address the consumer need, many grocers are renovating their stores. If these chains are your tenants, be aware that once the renovations are complete, property owners are realizing significantly increased rents from those tenants at lease renewal.
7. Be cautious with new construction. Tenant driven retail is preferred over spec retail. Know who the retailers are that are looking to expand in your area and get into relationship with them.
8. There are 2 new categories in the “Structure of the Retail Market”. They are “big box” at the top of the model (that is bigger than malls) and “convenience retail” at the bottom of the model. As our residential dwellings shift from single family homes to multi family (which includes high end condos), so does the need for retail. The convenience retail category will become the giant of the future.
9. If you are developing, know the process. it will go a long way toward getting your plan approved. Skipping a step in the process can really cost you.
10. The fundamentals in the Sacramento commercial real estate market are very good. Cap rates are increasing interest rates are still low. Some property owners are in trouble due to the shift in the market. This combination makes Sacramento real estate a great “buyers” market for the savvy investor. Work with an investment real estate broker who offers information, education and communication so you can capitalize on the “deals” that are available in today’s market.
You own commercial real estate. This property is likely one of the highest performing assets you own. When you have a problem with it, you call an agent/broker to assist. Who ya gonna call?
If you need to have space leased, your needs will best be served by someone experienced in your property type. An agent who has experience with retail is not necessarily familiar with an office or industrial lease. The provisions in each area of specialty are different. Make sure your agent has experience in your property type.
When you need to sell your property, you need an agent who understands there is a difference between an investment property and an owner user property. Owner user properties are generally a little higher priced and require a very specific owner. The investment property is all about the cash flow and the net operating income. Any investor could have an interest in an investment property.
Keep in mind that commercial real estate is a very broad category. The basic categories are land, office, retail, industrial, multi-family and hotels. Whether you need a leasing agent or a selling agent, experience in the property type you own is critical.
In addition to the specialty knowledge, an investment property also requires a thorough knowledge of financial analysis. The really good agents/brokers can not only do the analysis but also explain it to you so that you understand the numbers as well. When you see the CCIM designation after someone’s name, you know they are among the best in the world at financial analysis.
While you may be inclined to use the residential agent you’ve used many times before and trust, be careful here. You wouldn’t trust your general medical doctor to perform open heart surgery would you? The same consideration should be made for one of your highest performing assets, shouldn’t it?
Yes, I am referring to Apple Computer Stock. We have friends who bought 100 shares for $19.95 each. They are a great example of someone who bought low and sold high in the stock market.
What is easy to overlook here is that 20 or so years ago when this purchase occurred, they were very strapped for cash and really had to suffer to buy the 100 shares.
We have a similar situation with real estate. The owners of commercial real estate who bought before the recent increases generally had to scrape their money together to buy the property. They had to do without in the hopes of buying low & selling high. It paid off for them if they sold in the last 2 years or so because of the escalating real estate prices.
If these owners choose to sell their real estate today, they will still experience extremely high returns due to the appreciation of the property. Now the bigger concern for them is the tax consequence. The good news is that this is an area that can be controlled in a number of different ways, many of which I will be talking about in future posts.
What is happening now is that investors are looking to lock in their future returns on properties by buying low and selling high. In order to do this, they will realistically need to buy:
- properties in bad neighborhoods that are experiencing redevelopment
- properties with high vacancy rates
- properties with deferred maintenance issues
In a word, properties with problems. Buyers might stumble into someone who will give the property away for less than the value but those deals are few and far between. Today’s owner is more savvy than in years past and they often have a feel for what they think the property is worth.
Since prices have generally dropped for commercial properties due to the interest rate increase and the return to negative leverage (among other things), you should buy commercial real estate now. Obviously, to actually own the real estate, you need to be realistic in your expectations, don’t you?
Otherwise you may wish you’d bought AAPL at $19.95 rather than $135+ per share. Whether its the stock market, real estate or life, timing is everything.
Are you waiting for the bottom of the market to buy more real estate? Whether it’s the stock market or real estate, people try to buy low & sell high. Very few people get the timing just right. But by waiting for the perfect time, most people miss the opportunity to build wealth altogether.
Think about annual appreciation rates for residential real estate in Sacramento. In the past 7 years there have been 4 perfect times to buy. That was Q1 of 2000, Q2 of 2002, Q3 of 2003 and Q1 of 2004. In all 4 of these quarters, appreciation rates had dropped to a low point. If you were only willing to buy at the lowest point in the cycle, those were the times.
However, for all of 2000 and from Q4 of 2001 to Q1 of 2004, the appreciation rates were all less than 15%. The top of the market was 26.58%. Think about that. You had over a 3 year term to buy and get a minimum gain of 12.25% annually in appreciation. Or, you could have set it out because you missed those 4 specific quarters.
When residential real estate is appreciating, rents are generally increasing in commercial real estate. Since the value of a commercial investment property is in the rents, this means a solid residential market affects the value of commercial real estate in a positive way.
Do you have money earning you a low rate of return in mutual funds or a bank account? Consider taking advantage of this fabulous buyers market and buy commercial real estate. If you choose to take action now, you can capture some of the lowest prices in over 5 years and experience all time lows in interest rates. This combination will not stay around forever.
As your local real estate professionals in Sacramento, CA and Boise, ID contact us… we can and want to help you build wealth through real estate.
If you have been thinking about investing in commercial real estate, call 800–613–9852, ext. 402 to get your copy of our FREE report on How to Buy Commercial Real Estate…the Easy Way.
The Sacramento landscape is changing. Are you keeping up with the changes? Take this quick quiz to see how well you know the new “Sacramento”.
If you are from outside of Sacramento, you may consider all of the towns listed “Sacramento”. However, the numbers show some separate and distinct characteristics of each area. This information is critical for you to know when deciding on where you will buy real estate.
1. Which area has the highest growth rate from 2007 – 2012?
A. Folsom
B. Roseville
C. Elk Grove
D. W. Sacramento
2. Which area has the highest 2007 Average Household Income?
A. Roseville
B. Elk Grove
C. Folsom
D. Fair Oaks
3. Which area has the highest unemployment rate?
A. Sacramento City
B. W. Sacramento
C. Rancho Cordova
D. Arden-Arcade CDP
4. Which area has the highest percentage of owner occupied homes?
A. Folsom
B. Elk Grove
C. Roseville
D. Fair Oaks
Depending on your demographic preferences, you may choose one area over another. For more detailed information on a specific location, contact us.
Demographics are a start to making an informed decision about your new location. Making informed decisions is how you will build wealth thru real estate. Whether it’s commercial, residential or investment real estate, let Smith & Associates show you the way that best meets your requirements.
Answers: 1. B; 2. C; 3. C; 4. B
