Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/143044
Value-Add Strategy In 1999, our group, CPS Enterprises LLP, acquired Bells Ferry Landing, in Acworth, Ga., a 54,000-sf retail strip mall, for $2.5 million. We lost the 25,120-sf furniture store anchor that was paying about $12,000 a month for a former grocery space. Unable to lease the space, in 2002, we opened our frst antique mall, the Elegant Flea (now Woodstock Antiques). To our surprise, it was successful. Te mall was able to pay a higher rent of $14,000 a month and subsequently we sold the building for $3.7 million in 2005. We opened two other malls in rented spaces (a former grocery and a closed Walmart) in 2002 and 2003, testing and refning our business model. All the while we continued to look for another attractive acquisition to revive with a new store. But, as the overall business market strengthened and commercial properties went up in value in the early 2000s, we were unable to fnd a property to ft our criteria at an acceptable cost. Afer the Great Recession hit we renewed our attempt, and in March 2012 we purchased a 54,300-sf center in suburban Atlanta that met our requirements. West Cobb Plaza in Powder Springs, Ga., was bank owned and 80 percent vacant. We acquired it for around $22 psf — about the value of the land. Te existing tenants were paying $9,000 month in rent, which was barely enough to cover the basic common area maintenance costs much less any capital improvements or a mortgage. Two months afer buying the building we opened Treasure Hunt Antique Mall in the 27,500-sf former grocery space. Now, a year later, the property is 85 percent leased and the monthly gross income is about $24,500 and will be higher next year. We have a very low cost in the building and very low debt service; therefore, we have been able to lease our smaller tenant spaces at roughly half of the normal rental rate for similar properties and still enjoy a reasonable cash fow. Te low rents are why we have been able to add tenants so quickly using one, two, or three-year leases. Once we have proven to the tenants that we will maintain the building, bring in new customers, and help grow their businesses, we will slowly bring their rents closer to normal market rates. An antique mall may be a good value-add strategy as property owners wait out the struggling retail market recovery. Antique malls can pay substantial rent and draw customers for the smaller businesses in the building. In addition, the revived center creates jobs. Since no inventory is required, the cost to start an antique mall is relatively small, generally less than $120,000, which is usually recovered in less than a year. Quick to start, they can also be shut down quickly if a more desirable tenant commits to the space. All these factors make antique malls a viable choice for flling vacant big-box space. Jim Conway of Conway Equities LLC in Roswell, Ga., has more than 30 years of commercial investment real estate experience. Contact him at Gudwon@aol.com. Log on for the latest CCIM member benefit National Virtual Deal Making Session CCIM Designees present property listings to CCIM members and prospective buyers in a free webinar. TUEAUGUST 6TH TUEOCTOBER 1ST TUEDECEMBER 3RD ONLY THREE LEFT FOR THE YEAR! Don't let this exclusive opportunity pass you by. Register for the AUGUST 6TH session today. Visit ccimdealmaking.com for more information. Registration will close the day prior to the session at 12 p.m. Central. CCIM.com July | August | 2013 17