Commercial real estate investors concentrate on current net Operating Income when making an investment. They also want stability so they pass on properties that have leases coming due.
There are often opportunities in properties that have leases coming due. Property owners made some low lease rate deals during the recession in order to reduce vacancies and many of those leases are now coming due.An investor that purchases a property with these characteristics may now have the opportunity to renew the leases at closer to market rate.
As an example, an office property in North Florida sold in 2012 for $2,000,000 at an 11% cap rate. Part of the reason for the low price was that the property had many lease renewals coming up. By increasing the rates on lease renewals and by improving the property management, the new owner expects to increase cash flow by 20% in the first year.
If the local economy is strong the risk of vacancy is reduced. There are market areas where the local economies are strong that have quality properties for sale that do not attract bidders because of the leases coming due. These properties should be looked at as an opportunity.
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