Strip Malls And Shopping Centers: What Do I Look For In Terms Of Pitfalls And Peril?
My portfolio will include in the not so distance future getting into strip malls and shopping centers, some thoughts about what I need to look out for!
Look for
Leases
Differed maintenance
Vacancy rates on neighboring properties
Comparative rental rates
Cap rates
Growth
To name a few things
Gregg
_________________
Gregg Fous
Investor/Developer
"Developers Make it Happen"[ Edited by GFous on Date 12/29/2003 ]
A great source of investment but also they are highly responsive to movements in society and of course area economics.
We have one big time developer, oops excuse me, ex big time developer. He was a nut on percentage leases. Drew him like a magnet He loved it, gave him a direct insite into how well the business was doing and from that he expected at time of the lease expiration to then be able to increase the rental rates.
Accordingly. He read a lot of historical theorys of economics. I mean he knew Malthusian Theory and could spout it off at all occasions. John Maynard Keynes was like a god to him. If I mentioned the overiding Theory of Causality (Stuff Happens) he would ask me to leave.
None of the simple stuff for him. Yes you guessed it. His street smarts were very limited. I mean, I like the idea of percentage leases, but in small business you are asking for it. The only way you are going to get a right count is to move into the store and stay there night and day awake with one hand on the register.
Well the rental income began to slip after the first flurry of opening business and he could not figure it out. Damn all you had to do was spend a day with a counter and click on each incoming customer. But that was too primative for him. He needed something eclectic. Some kind of a manuel with big words in it.
In any case it got so bad that the investors began to call him dirty names and ask for a return of invested capital. Now thats the kiss of death for a builder of Strips and Malls.
To shorten the pace, he was eliminated from the ownership with a small little going away present. His Hat!.
The new owners came to our shop and it was our suggestion that they look for a clause and terminate those percentage leases which did not even have a base figure.
Thank god there was a "back door" on the leases and the threat of a fraud action etc. did the trick. The new rents were based on observed rentals in the area and everybody became friendly and the little strippers stayed in business.
The moral of this tale. If you wish to play the game, learn how to build well, no not super delux, I mean well. Good plumbing and electrical and as solid as cement can make things.
Watch your leases and don't get cute. Know when you have a losing entity and get him out. Clock the tenants at least every six months and occasionaly shop them and see how their clerical help interact with the clients. You will be amazed at the baby scams that go on. Like everything else, do not try to run it from a distance.
Besides its a lot of fun.
That trick with the Twenty Dollar Bill shorting the customer, I never did learn it. But I am trying. I lose a lot of Twentys. Smart Ass Clerks!
Losing Loosing Lucius
Oh yeah, the politically correct term is: "In LIne Retail"
I agree w/Lufos - stay away from precentage leases. Also agree that in line retail is very responsive to the social and economic pulse of a nieghborhood.
I build them, fill 'em up and sell them and then build another one.....
I like the financing I can get on 'em too.....
_________________
Gregg Fous
Investor/Developer
"Developers Make it Happen"[ Edited by GFous on Date 12/29/2003 ]
In line retail ... got you! Sidebar, here in NYC when advertising realty they will use a term called taxpayer special in their ads ... a taxpayer special would be?
haven't got a clue......