As Senior Director at Eastern Consolidated, I’ve been selling investment grade real estate since 1985. I also head Eastern’s Retail Sales Group. The Group was formed when it became obvious that the retail component of many deals was actually driving the values of the real estate. Additionally, retail condos were becoming more popular. Our Retail Sales Group brings this asset to the forefront.
Retail condos are the urban equivalent of triple net single tenant assets; your Walgreens in Minnetonka if you will. They are a safe place to park cash and make a great 1031 exchange vehicle AND they come in every shape and size. Not management intensive, it’s a versatile asset, great for a user who wants to be in control of their future. If the business doesn’t do well, they can always rent the store to someone else or sell it. It’s an asset and trades quickly, unlike a building and if the tenant doesn’t pay, it’s not the same legal hell as a residential unit is to vacate.
Often times, when an owner is trying to evaluate their building they look at the asset as one property. I look at it as two. I value the retail as if it could be condo-ed and then add a market cap rate to determine both values. Usually this is more than what the owner expected.
The Sum of the Parts Equals More than the Whole
A residential investor usually values the apartments differently than the retail component. They will often pay a premium for the residential, but discount the retail for various reasons if they don’t fully understand or appreciate the nuances of today’s retail market. A retail investor may get the retail value but not the residential. In these cases, I try to formulate a strategy where I can marry two buyers as partners or sell the asset in parts.
Adelaide Polsinelli is Senior Director and head of Eastern Consolidated’s Retail Sales Group. You can meet with Ms. Polsinelli and hear about Eastern’s many retail opportunities at the ICSC New York National Conference, December 9 – 10, at The Hilton New York, 1335 Avenue of the Americas, BOOTH #402.