Is anyone here who invests in small retail centers? I am interested in learning what channels are used to find “better” deals. I know of Loopnet.com and Costar.com, are there any other good ones? What Cap Rates make up a good deal?
ccimnet.com is good. I personally don’t care about cap rate but I know a lot of people who do. Most investors I deal with want at least 10. But then you get a few with think 7 or 8 is good, and a few who want 12+. I guess its a personal preference.
I own 2 strip centers. Both were bought with unsolicited bids after seeing they were struggling. I’m not a turnkey buyer so sifting through properties by cap rates or any other financial measure would be senseless for me also. If you’re not buying for some type of improvment, any commercial broker will know all the listings.
Cap rates will be specific to your area. If you’ve got some money to put down and are elgibile for the financing most retail property buyers go for, the market cap will suit you just fine. The “better” deals for turnkey buyers are finding the dumb (motivated) sellers. The recipe will be as follows: 2 parts networking (REI clubs, BOR, Chambers of Commerce, golf clubs, charity events, etc.) and 1 part looking through listings with a broker. You could also try a direct mailing to all of the retail strip center owners in the area.
Danny’s post highlights the two main strategies of strip-center investing besides development: turn-key vs add-value. Look at the intricacies of each deal.
As he mentioned, for an add-value property, current CAP will have little bearing on the success of the investment. If tenants are only leased through 2009, vacancy is high, the property is older, traffic counts and demographics are not favorable, the property is competing with newer retail, a very high CAP may not be attractive.
For a brand new fully occupied turn-key property net leased for many years to come(at least five) a 7-8 CAP may be an attractive target. Especially with rent escalations built into the leases.
Who are the tenants? Is there a strong anchor tenant that will consistently bring traffic to the location as well as attract the smaller tenants? What percentage of the total space does the anchor tenant occupy? A 7-8 CAP property with a random mix of tenants whose leases are secured by personal guarantees is not attractive. A 7-8 CAP property with an national credit tenant as an anchor may be attractive depending on your market, especially if you have strong CPI based lease bumps.
Is the anchor tenant a tenant whose business relies on disposable income or a tenant whose wares are necessities(grocery stores)? Are the smaller tenants focused on disposable income or essentials? Demand a higher CAP from retail centers where the majority of tenant’s businesses thrive on disposable income, even if they look turn-key. They involve an inherent extra risk factor.
For a first acquisition, it may be best to stick with turn-key. If you’re looking for add-value, do your homework and make sure you can add-value rather than board a sinking ship. An old vacant retail center can be one of the toughest properties for add-value investing.