Challenges in the real estate marketplace are continuing unabated, presenting the opportunity for investors to consider shifting the focus to long-term alternatives that can produce a generous return on investment while still providing for an overall flexibility. This shift among many investors is contributing to an increase in demand for retail condos in many gateway cities across the globe. This is being seen in cities like San Diego, CA and has skyrocketed in New York, NY since 2008.
The shifting investor focus is not the sole factor in the increasing demand for retail condos. The volatility in the market is also allowing for differential shifts in the overall retail sector providing for moderate expansions to take place between both new and evolving retail clients and those with an established presence. Thus moving retail condos into an asset class investment is attracting many investors ranging from international investors to private equity firms.
The Attraction For Investors
As opposed to freestanding properties, retail condos offer a built in flexibility and draw that often shifts less than that with a single property client. Additionally, retail condos offer the bottom floor space of multifaceted spaces such as mixed residential/commercial properties thus having a better opportunity at continual occupancy. Similar to net lease properties, this presents a stable income allowing for an increased chance of securing beneficial financing further allowing the advantage of lower interest rates to come into effect. Additionally, present investors in possession of retail condo space can see a generous return with the increase in pricing currently being experienced.
Not A Bed Of Roses
While the opportunity does exist for investors, there are some thorns that should be considered. Often, property control is a concern as many retail condos have existing regulations and requirements, in addition to compliance and addressing concerns posed by condo boards.
However, often the entanglements are limited to long-standing, existing properties and can be mitigated with investments in retail condos that are part of new development. J.D. Parker senior vice president/district manager of Marcus & Millichap’s New York City region remarks, “From a property management perspective, you don’t control the asset 100 percent. And that’s a risk that many investors aren’t interested in taking on.”
With most dense urban environments experiencing resurgence, the long-term strategy for investing in retail condos remains positive. Retail condos offer a stable income situation for better acquisition of premium financing, a higher rate of return over the life of the property and the flexibility to handle swings in the overall market that have short term effects. It is true that investing in retail condos is not without risks, the risks are easy to calculate and can be reduced or mitigated to increase the viability of the investment strategy.
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