Q: I plan on selling my strip mall and retiring. How can I best maximize my property’s value before I sell?
A: In commercial real estate, market conditions, location, existing leases, and maintenance all combine to determine immediate value. While factors like routine property maintenance are key to obtaining a good sale price, when considering the ultimate value of any property, the principle of highest and best use can enable commercial property owners to realize the highest possible return on their investment. As individuals, investors have little or no control over market conditions and location, but can greatly influence attaining the best possible use and selling price for their properties. These eight points will help you focus on attaining that value.
Highest and Best Use
A property’s highest and best use is that which would generate the highest income and value for a property. The Appraisal Institute of Canada defines highest and best use as the “Reasonably probable and legal use of property, that is physically possible, appropriately supported, and financially feasible, and that results in the highest value.”
Ask yourself whether your property is maximizing its potential as a retail centre? Does it offer commonly needed services that bring traffic to your plaza, such as popular food, a convenience store, a laundromat, printing, shipping, or any other high-traffic business? No room for a coffee shop? How about a drive-through or a free-standing kiosk, or an ice cream stand during warmer months? Should a vacancy happen to occur in your mall, always try to attract the most high-profile tenants possible. Often, it is worth negotiating enticing move-in terms, for instance, to secure more established retailers. It’s best to always keep long-term gains in mind, especially when selling is on the agenda.
Add Value with New Features
Consider whether your mall has other value-added features that attract shoppers like bicycle racks, benches, and clean and adequate public restrooms. Boosting your tenant’s businesses boosts your property’s visibility and desirability. Maintenance, cosmetics, and curb appeal are equally important to the commercial property owner when seeking to attract buyers as they are to your retail tenants seeking to attract and retain a desirable customer base. Often, a small investment of time and money can increase your property’s value by more than the sum of those parts. Exterior paint, landscaping and general repairs should top your list. When making that list, be sure to include the following items that all help realize a property’s full potential.
The importance of property maintenance can never be stressed enough. Be meticulous, err on the side of caution, and strive to nurture landscaping excellence. Follow up on issues as they arise. Keep a calendar and a detailed log of routine, annual, and major maintenance tasks that you can thoughtfully pass on to the next owner. Such a log may also prove instrumental in sales negotiations.
In the tenets of business, happy tenants are more attractive to commercial real estate investors than unhappy ones. Perhaps surprisingly, it often takes less time and effort to tackle issues head-on and reach a solution than it does to maintain strained relations over maintenance delays or unresolved security issues, for instance, and potentially lose a tenant. Contacting tenants quickly, and working to resolve issues as they arise actively protects your investment.
Expansion and Leases
Look into opportunities to expand your income base by adding to your existing structure, installing indoor or outdoor kiosks, and/or adding additional parking spaces where possible. Naturally, a higher annual net income will appeal to more buyers. Reassess your current leases as well, and plan equitable rent increases.
Art and Buskers
Consider a mural or other attractive feature that will elevate both your property’s visibility and its value while enriching the community. Commission a local artist for an outdoor mural or seek out a school willing to co-create a neighbourhood monument, such as painting tiles for outdoors, or panels to hang on the interior walls of your building. Enliven your property’s appeal with buskers such as a magician, balloon twisting clown, a wandering minstrel, or a chalk artist, for example. Entertainers and artists work retail areas for tips in many cases, and help make your commercial retail property a neighborhood hub.
Consider Cell Towers and Billboards
Some properties are able to increase revenues by virtue of being suitable locations for cell towers. A passive, steady income is always appealing, but take care that this move does not interfere with the benefits enjoyed by existing tenants, nor degrade the property’s overall desirability. Billboards are another fairly lucrative method of adding to your property’s income stream, if permits are available in your area.
Property Taxes, Rezoning and Refinancing
It’s always a good time to examine property taxes to see if there is room to appeal for a lowered rate. By the same token, explore refinancing at a lower rate. Shop around for a lender looking to entice borrowers to get the best rates and lowest refinance expenses. Look into your property’s zoning to be sure that there are no issues that would hamper your future sale and also in case of opportunities to expand a property’s existing zoning.
Applying these eight principles of managing your retail property will both enhance and maintain your investment to realize its highest and best value.