Strategy for Shopping Mall Investments in California

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Investing in California shopping centers is a challenge for many investors. Most of the state's shopping malls are very low if they are not the nation's lowest cap, 4-6% range. As a result, cash flow is poorly compared with shopping malls from other states. Investors need more money for advances, for example. 40-70% of the borrowing fee can be credited

The development is that the state of retail real estate has a vacancy rate of the lowest in the 50 states. For example, the retail vacancy rate in San Jose is only 4%, the second lowest in all major metro areas (Oakland with the lowest vacancy). This means that the income stream must be very stable. So if you do not have a strong cash flow as an investor, you need to look for real estate that has a strong potential for appreciation to achieve a better return on investment. To do so:

1. He sells the property with a lower margin. If you bought a shopping center at a higher rate of 5-10 years ago, you can get a strong appreciation. However, if you have recently purchased a property with a low margin, you can not reduce the top margin. So this approach probably will not work.

2nd Increase your rent. Most NNN leases have a fixed annual rental income increase of 3%. Assuming market capitalization remains unchanged, this is only a sharp, 3% annual appreciation unless you want to estimate it in different ways.

Property Analysis

The purpose of increasing the lease begins with the analysis of the purchase. While most retail real estate in California offers a 4-6% yield, many real estate leases are rented by tenants for

1. Poor wealth management and / or simply lack of market rent. Some real estate owners choose to manage their property to save costs. However, these are among the worst property managers if the rental fee is used to measure their performance. They are often unaware of the market rent, so they often rent the first tenant to secure the unit's fast engagement

. Long term rental contracts when the rent was low.

So the most important thing is to identify real estate under which rental rates are low and low squares. These properties have upward potential. Market rents are often wide-ranging. For example, retail outlets in San Jose have $ 2-5 dollars / SF commissions over a month. It is not easy to determine whether renters of real estate pay under market rent. The following are features that have low upside potential to filter them out:

1. Big-box properties with anchor tenants, eg. Wal-Mart, Target or Safeway. These large national tenants often make long-term lease agreements with low rental rates due to their creditworthiness and large lease. After signing the lease, the rent is closed for 20-30 years. It is almost impossible to drastically increase your income in a short time. In fact, many large boxed retail properties in California are listed at the following replacement cost. This is because they have a long-term lease under market rental rates. They are in circulation for a long time and they will not sell because the cap is low, for example. 4%. Prospects for higher incomes sometimes fall to 15 to 20 years when the lease expires.

2nd Retail centers have a very high price per square foot, eg. more than $ 800 / SF. The tenant must charge $ 4 / SF a month, plus NNN to reach the 6% cap. This is almost the highest rent on the market, so it is hard to raise even higher.

3rd Retail outlets offering long-term options and 3-5% rents instead of market rent. You should pay attention to the small details of the lease, as this may have a significant impact on the lease. The problem is that the appreciation in California is 3-5% higher each year. So if the rent is not adjusted to the new fair rental fee at the beginning of a new lease option, then rent is likely to be below the market rent and can not be sold at the highest market price

. see shopping malls with multiple tenants offering 4-5% cap, but only at $ 200-300 / SF it is very likely that the property is below rental rates. This kind of property offers strong offerings. After seeing this property, you should also check that the property is:

1. Next to anchored tenant. Owners prefer to be a fixed tenant, as this fixed tenant brings more traffic to the center. Owners are willing to pay higher rent for this place

. A multi-dwelling strip with small units. In general, rent is higher for smaller units, for example. 1000 SF than the larger 4-5000SF because several tenants are looking for 1000 SF units.

3rd In a large artery or near the freeway. Traffic and comfort are always good for business.

4th In a stable or growing area where household income is higher. When local residents receive more disposable income, they spend more time and money on good and service offered at retail outlets.

5th It is located in an area with low vacancy rates and high rental rates. Ideally, you rent a property that expires in 1-5 years. This will allow you to quickly adapt to higher market rent.

Sometimes it helps problems as opportunities to see. For example:

1. Most investors do not like the retail ribbon with gross leases. However, if you convert these gross leases into NNN, you will get great recognition.

2nd Most investors do not like a high-loading shopping center. However, you may be able to buy at low prices. If you can quickly turn up and improve the rate of utilization, you will get a good reputation.

Asset Management:

When you purchase a property you will need a good property owner to increase your rent. The real estate owner is a key partner for implementing his investment strategy. In order to substantially increase the rent, eg. 30-50% more than the previous rent, the real estate owner must prove to the tenants that the new market rent is a fair market rent. Otherwise, tenants may make a bad decision and move them. This includes defining fair market rental rates and comparable tenants. Therefore, as a decent businessman, he wants the real estate owner to encourage extra work. One way is to compensate the real estate owner for a certain percentage of the appreciation when selling the property along with the typical 4-5% asset management fees. This is a profitable one for both the real estate owner and the lessor if the property shows a surplus of value due to higher net operating income. Otherwise, a typical 4% fee on a property management contract will probably have a 3-5% rent increase when renewing the lease. Both and the realtor lose if this happens.

Of course, some marginal profitable tenants will not be able to pay higher rent and they will move. The real estate owner must evaluate the financial and business strengths of all the tenants and determine the possible placements. Accordingly, you will plan to find replacement tenants to minimize your income loss.

Before lifting a substantial rent, cosmetic changes can be made at the mall to provide a new look. Please note the following:

1. Replay the center again.

2nd Renew and park the car park.

3rd Make sure that the air conditioners and heaters are working.


When tenants see these improvements, they can convince themselves that it is too risky to relocate the business to another lower rental location

Favorable financing:

from non-conventional sources with favorable funding conditions, eg insurance companies or fixed instead of lenders to typical commercial creditors. While you have to pay higher credit repayments and closing costs, long-term savings in interest payments are significant. As a consequence, the interest rate should be reduced from 6.75% to 5.8% for surplus-value malls.


California commercial real estate market is very different due to very low leverage. To return to strong investments, you must be a creative businessman, this so-called "passive investment". By choosing low-priced rents, buying highly motivated real estate owners and selecting low-priced financing, you can achieve strong cash flow and strong recognition in a relatively short time

Disclaimer: The investment strategy and investment management information presented in this article is not can be regarded as formal financial planning advice or financial lead / customer relationship. The authors give information to the general public on our investment management and investment strategies recommendations and are not designed to be representative of their own financial needs. The information contained herein is not a financial management advice. The authors do not warrant or represent the accuracy or legality of the information in this article and are not responsible for the use of this information. Please do not make any decisions on any investment management or investment strategic issues without having to consult a specialist.

Source by sbobet

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