When your buying commercial real estate it is important to know the signs that will point to a prosperous result.

We will be going over the specific signs involved with buying shopping centers as well as multi-tenant retail investment property.

Location and the traffic

First and most importantly, the location must be suitable to your needs. Potential property purchases should have a location that has a known safe neighborhood, some form of convenience, and a lot of foot traffic as well as vehicle traffic and available parking. It is also important to note the ease of entering and exiting, which could determine the desire people have to interact with your property.

To add to your research notes, check on the demographics of the area to get a better understanding of your customer base. Follow up with Chamber of Commerce, the local libraries, city hall and census bureau. By interacting and understanding all these different parts of the area you can better prepare your property and potentially max out it’s potential. Through factors such as number of households, estimated age, race and income levels of the surrounding population you can narrow down your target audience to a ‘T’ and not be struggling for business.

As for the traffic count, you can find this information at your local traffic department and get an understanding of possible out of city visitors and take them into account. The goal is 50,000 cars per day near your business, and if possible a high foot traffic as well. Keep in mind the times of day this traffic occurs and the congestion and rush hour.

Age of the property

Age is a very important factor in all commercial real estate purchases, however especially when it comes to purchasing a shopping center and multi-tenant retail investment properties.

Every building overtime will need some form of maintenance and usually, property that is already on the older side of life will require more investment in repairs. Being said, it should be taken into consideration the feasibility  of the necessary maintenance costs that will arise. Things like galvanized pipes, concrete repair, water heaters and HVAC systems.

Think of the repair process as a form of domino’s. You call to have one issue fixed in your older building, but then the repairman discovers another issue,  turning a possibly simple repair into an entire ordeal. So this is a good example of the risks that may be present with older property and the financial security you should have in the off chance something pops up to add to the repairs.

Results of diversity and quality

Your goal is to have a shopping center than can meet all the needs of customers in one location. So how would you go about doing that? Diversity. Many experts have attributed the success of shopping centers to a quality, diverse tenancy.

When considering the purchase of a property, check out the current tenants. The ideal mix would involve retail tenants, anchor stores, local businesses and national chain stores. The local businesses will provide for the community and strengthen relationships, while the national chains will provide quality as well as reliability and minimize risks.

It would also be wise to evaluate tenant quality by looking at rent rolls, credit files and payment records, as well as talking one-on-one with the tenants.

The expiration of tenant leases

It is not always easy to know when a tenant’s lease will expire, due to complex circumstances like repairs or improvement completion that is pushing the date back to an unknown time. In order to remedy that and get a better grasp of the situation for schedule purposes, it would be wise to review contracts, lease terms  and any relevant sections that may impact commencement. An example would be a work letter that details the work must be performed before a lease commences.

Pay attention to lease lengths and what type the lease is. Is the lease a month-to-month or long term? The type of lease it is can indicate the turnover rate and stability factor. Here is a list if important factors to determine when reviewing tenant leases

Income/Cap Rate

Sometime you may find yourself choosing between multiple properties to purchase. To help come to a definitive decision the cap rate is a useful assessment tool.  To find the cap rate, divide the properties net operating income (NOI) and the sale price- or current value- of the property. This will result in the ROI (Return on Income).

Evaluating your local competition and properties

Knowing the surrounding properties is important to learn about the potential problems or possibilities that may arise. It is important for your property to match the spending habits of the surrounding stores, for example if you have a spa treatment surrounded by dollar stores, your bound to have problems. However if your spa treatment is surrounded by salons, your more likely to have more customers.

Now you have to consider if the location has what your offering, or are you bringing something new to the table? If your a dollar store next to another dollar store, well there wont be any strong customer base because they won’t care which one they purchase from. Your business needs to stand out as well as fit into the value of it’s location.

Give us a call or send us an email! We at Kontor will keep you ahead of the curve!

Phone: (612)567-1810

Email: yourplace@kontorrealtygroup.com

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